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Roaring Kitty to testify on GameStop alongside hedge fund managers

reuters.com

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Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#161

Post by bsanr2 »

csours wrote: post #25
sillysaurusx wrote: post #10

It's interesting watching /r/wallstreetbets oscillate between "We did nothing wrong!" to "Well okay, some people were doing some things that were wrong, but hopefully no one will notice." https://www.reddit.com/r/wallstreetbets/comments/lj8djx/day_... (I don't personally believe that anyone did anything that should be prosecuted here, but what I believe is irrelevant to courts.) There is one thing that (in my un-humb…

They didn't change the rules of the game. The volatility and risk changed, thus the collateral requirements changed. Note: I am not a financial professional. I'm not sure if anyone from wsb should be prosecuted; but I will say that if another hedge fund had tried to do what wsb did, it would have been clearly and unambiguously illegal market manipulation. I do think it is quite likely there were some financial profes…

The issue is that the volatility had been unprecedentedly high for a week, but they jumped up the collateral requirements overnight. It would be one thing if they'd stepped it up in time with volatility, but by the timing, it looks less like a protective and more like a punitive step.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#162

Post by valuearb »

stereolambda wrote: post #114
sideway wrote: post #112

Earlier quoted context omitted.

> ...applying the value investing style. I thought this style is pretty much dead, because market efficiency has increased compared to the times when Benjamin Graham analysed securities by hand Do you mean the manual part has gone out of style or fundamental analysis altogether? My knowledge on finance/accounting is extremely limited and after watching some of his videos back in November, I took for granted that this…

What I mean is this flowchart: use a financial model like Discounted Cash Flow for finding companies that are "objectively" severely undervalued -> buy them -> wait X years until they reach their "fair price" that you calculated at the start -> sell for a profit Aswath Damodaran has some online academic content on valuation in that style. The main problem nowadays is the "severely undervalued" part. People in general…

All long term investing is fundamental based investing, and the market is just as inefficient now as when the Graham was writing.

Checkout Michael Burry as a more recent successful value investor, He was up on the market 400%+ over his first five years before The Big Short.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#163

Post by dehrmann »

sumedh wrote: post #13
dehrmann wrote: post #6

I realize this is just grandstanding by congress, but it feels like there are more important things to be working on right now.

> but it feels like there are more important things to be working on right now. Institutions abusing the system is not important?

I don't actually see much institutional abuse. Some hedge funds got squeezed, but that happens. Robinhood faced capital requirement issues, but considering the circumstances, it seems fair. Market makers kept trades happening.

The only abuse I see is Robinhood encouraging retail investors to make risky trades and possibly some people on WSB organizing a pump and dump. Institutions acted pretty responsibly.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#164

Post by valuearb »

dagmx wrote: post #21
nbar wrote: post #7

What did Gill do that was illegal?

This doesn't imply that he did anything illegal. It's standard in hearings to get any/all prominent people/corporations involved to testify to paint a clearer picture for law makers to then potentially act on. It's more research than anything.

He clearly violated his professional obligations, but congress doesn’t prosecute anyone, Massachusetts will if anyone does.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#165

Post by bsanr2 »

IgorPartola wrote: post #139
sillysaurusx wrote: post #129

Earlier quoted context omitted.

But also because of this specific crowd it seems a good chunk of them are not selling on the idea that if you buy at $300 and sell at $50, you definitely lose. So close! You're almost completely correct, but remember that a loss is considered a win on wsb, because you get to post loss porn. Can't spell trader without retard. https://www.reddit.com/r/wallstreetbets/comments/ljde34/rip/ Your comment is excellent. But I…

That’s a really interesting take. The way they seek the lowest common denominator of communication does seem to create a strong sense of community. What I mean by dangerous is this: as more people flock there more capital will enter the market through that gate. And that’s a lot of money to be directed by whims of a fickle and undereducated community that tends to ride whatever is popular at the time. This time they…

A market so susceptible to mania is maybe in the need of brakes that are used judiciously and without bias. We clearly do not have that, and in fact have been stripping them away since the 80s.

You can't blame this on "unsophisticated" investors breaking norms but ultimately playing by the rules.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#166

Post by scatters »

valuearb wrote: post #152
voiper1 wrote: post #36

Earlier quoted context omitted.

If they required 100% collateral, why did that mean Robinhood stopped trades? Why couldn't they allow trades with 100% settled funds?

There is a two day closing period for stock sales. During that period the exchange needs colateral to ensure when the transaction closes it will be paid for. Typically this collateral is small, like 3% because most stocks aren’t volatile and buyers almost always pay up. But when a stock gets incredibly volatile, there is a risk that buyers of $480 shares may refuse to pay when the price is $90 two days later. Especia…

And the inverse; if you buy at $200 and the stock is at $400 two days later there's a risk that the person you were buying it from has disappeared (maybe they were a short seller and went bust; maybe they got seller's remorse). So RH has to reserve not just the $200 you paid for it, but also another $200 to buy the share on the open market when the counterparty fails to deliver. That's why collateral requirements are based on volatility, not momentum.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#167

Post by valuearb »

sumedh wrote: post #13
dehrmann wrote: post #6

I realize this is just grandstanding by congress, but it feels like there are more important things to be working on right now.

> but it feels like there are more important things to be working on right now. Institutions abusing the system is not important?

We don’t need congressional hearings to carefully explain to WSB newbs how the stock market works, why collateral requirements are important, how you can easily short the same shares multiple times, and why the institutions did their jobs in this kerfuffke if their own creation.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#168

Post by xorcist »

gruez wrote: post #137
xorcist wrote: post #95

Earlier quoted context omitted.

Can someone please explain the situation to someone with no competence how these markets work? As far as I understand, no one is allowed to trade on stock exchanges directly. Everyone has to go through a broker. Orders has to be settled in 2 days. So there are counterparty risks involved in both steps here. Is this where there was a problem? But the retail trading platform takes zero financial risk as long as they do…

>Is this where there was a problem? But the retail trading platform takes zero financial risk as long as they don't allow their customers to trade on credit (which is an entirely different issue). From matt levine: >This means that the seller takes two days of credit risk to the buyer. I see a stock trading at $400 on Monday, I push the button to buy it, I buy it from you at $400. On Tuesday the stock drops to $20. O…

Yes, so I take it to mean that indeed the retail trading platform (the actual term may be something else), takes zero financial risk. The broker that the retail trading platform uses to access the trading exchange takes this risk.

But the counterparty risk here is quantifiable (by way of audits of said retail trading platform) which usually in society makes it a case for insurance, not security payments. That is my question. Is the premise misstated, and if not, why is this not settled by insurance?

The three replies posted to the question above seems to disagree what the problem actually was.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#169

Post by dagmx »

valuearb wrote: post #164
dagmx wrote: post #21

Earlier quoted context omitted.

This doesn't imply that he did anything illegal. It's standard in hearings to get any/all prominent people/corporations involved to testify to paint a clearer picture for law makers to then potentially act on. It's more research than anything.

He clearly violated his professional obligations, but congress doesn’t prosecute anyone, Massachusetts will if anyone does.

Yes, personally I think he's in for some trouble with MA, but I was speaking to the congressional hearings which, like you said, aren't a prosecution.

I do think he purposefully downplayed his financial history in an aim to drive up hype, and as you stated, violated his professional obligations. At best, he walked a very thin line which will be scrutinized. At worst he broke the law and will face charges, and WSB will add a new chapter to their lore either way.

Re: Roaring Kitty to testify on GameStop alongside hedge fund managers

#170

Post by bsanr2 »

MattGaiser wrote: post #31
stingraycharles wrote: post #15

Earlier quoted context omitted.

Was a change in collateral requirement something that was known / codified in some agreement, or was it an ad-hoc decision?

> How a clearinghouse judges these risks, and therefore when it makes demands for more upfront funds, is typically formulaic. Margins can be based on equations such as value-at-risk. Exactly how the formula works, and who is responsible for losses in what order, are important elements. In the case of National Securities Clearing Corp., losses would be covered by the defaulting member’s funds before the clearinghouse’…

Let's take a look at the formula.
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