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Analysis: Robinhood protected from lawsuits by user agreement, Congress

reuters.com

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Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#171

Post by dang »

ffggvv wrote: post #81
ericmay wrote: post #4

Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too. This will be fascinating to watch. Can the repair the brand damage? I’m skeptical. Is there any similar scenari…

there isn't going to be an exodus.. just a whiny minority complaining they cant bankrupt themselves

Please stop posting flamebait and/or unsubstantive comments to HN. You've done it repeatedly and we ban that sort of account.

https://news.ycombinator.com/newsguidelines.html

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#172

Post by pfortuny »

newacct583 wrote: post #54
mdorazio wrote: post #5

"It will be hard to prove users suffered as a result of Robinhood’s measures because GameStop and other stocks covered by the curbs fell sharply on Thursday after the restrictions were announced, said James Cox, a professor at Duke Law School." Wait, what? Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their…

> Can anyone legitimately make the claim that the massive drop in value that cut off the price rise at the knees and allowed the worst short positions to cover their losses sub-$200 didn't materially harm the users? Yes, because you'd have to prove that Robinhood volume alone caused that drop in price. Robinhood isn't that big, and GME volume was crazy on Thursday. It's equally likely (and equally impossible to prove…

All bubbles pop, all soap becomes a bubble. Your statement is true technically. There is no way to argue with that.

The 1000000-dollar question is “when”.

Zerohedge (banned here) has been forecasting the pop of SPX and Nasdaq for several years now...

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#173

Post by dang »

jedberg wrote: post #12

I'm not sure why this article talks about reddit at all. I'm not aware of anyone suing reddit or even considering it (unless the hedge funds plan to do so?). It seems like they just wanted an excuse to write an article about Section 230, or had already written it when it was a big topic earlier in the month and wanted to use what they wrote elsewhere. :)

Ok, we've deredditized (unreddited?) the title above. Good catch.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#174

Post by cabaalis »

tptacek wrote: post #120
codesternews wrote: post #74

Earlier quoted context omitted.

This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.

Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowe…

You state all this as though their choices were not deliberate. Of course they are acting within the rules, while trying to foster an appearance of all you can eat buffet instant buy/sell, when the market really doesn't work that way. However, users came to expect that convenience. That business model may be inherently untenable in the face of events like this.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#175

Post by sgregnt »

ditonal wrote: post #104
codesternews wrote: post #74

Earlier quoted context omitted.

This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.

Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue. But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their gene…

This is tangential to RH, but never the less related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations?

What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?

I found it difficult to understand the intricacies related to this question.

Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...

What mechanism are there in place to insure that ETF will not deviate from the underlying stock?

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#176

Post by jb775 »

maest wrote: post #44
vertis wrote: post #25

Earlier quoted context omitted.

I don't have a Robinhood account, and I'm not involved in the GME/WSB stuff, but I would think twice about opening a Robinhood account now. Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct. But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many lo…

This is not the first time RH has gone down during critical moments in the market. Yet their userbase grows and their users come back. They'll be fine.

This wasn't "going down", it was active blocking of specific stocks because RH exposed themselves to massive risk by assuming the hedge funds they were pimping their customers out to would never be swiftly bankrupted.

RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%.

If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#177

Post by tptacek »

cabaalis wrote: post #174
tptacek wrote: post #120

Earlier quoted context omitted.

Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowe…

You state all this as though their choices were not deliberate. Of course they are acting within the rules, while trying to foster an appearance of all you can eat buffet instant buy/sell, when the market really doesn't work that way. However, users came to expect that convenience. That business model may be inherently untenable in the face of events like this.

Your argument is that Robinhood "chose" to create the impression that people could trade any meme stock they wanted with impunity on their platform, but didn't do the work to ensure that they could. I agree, that's a choice they made.

The comment upthread argues that Robinhood "chose" to retrict trading in meme stocks. That argument appears to be false. Robinhood did not have a choice whether or not to restrict trading; it simply didn't have the money to cover the clearing for those trades.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#178

Post by tptacek »

pfisch wrote: post #165
sroussey wrote: post #159

Earlier quoted context omitted.

Public was limited by their clearinghouse. Several brokerages did this. Some did not, mostly since their clientele wasn’t buying these anyhow.

Name a big, reputable brokerage that did this.

A nice thing about being a big, reputable brokerage is that you have access to big, reputable piles of cash to cover clearing collateral.

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#179

Post by dyslexit »

tptacek wrote: post #120
codesternews wrote: post #74

Earlier quoted context omitted.

This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.

Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowe…

I believe this explanation but I do still have questions.

Why didn't they just restrict buying like they did in Friday instead of halting it completely? By halting it completely they caused a panic which caused lots of people to sell.

Why didn't they halt or restrict buying of any other stocks? Why only the meme stocks? It should have affected their financial responsibilities to the clearinghouse the same ways, no?

Why did they give no warning and explanation for what was about to come? The abruptness of it was obviously going to contribute to the panic.

The standard expiration date for meme stock options was the day after they halted buying. This caused their own customers holding those contracts to lose money. Why did they claim they were doing this "to protect their customers" when it was their customers who got screwed by this?

Re: Analysis: Robinhood protected from lawsuits by user agreement, Congress

#180

Post by ll931110 »

alasdair_ wrote: post #77
TuringNYC wrote: post #64

Earlier quoted context omitted.

Not on options

While technically true, I wonder if people care much about a $1 fee on an entire contract (100 shares).

The fee can still be very significant, especially once you engage into complex options strategy (e.g. call spread / put spread / iron condor). That tends to trade in significantly larger quantity (e.g. you can have a 50x call spread), in which the fee is now $100 ($50 for buying a call and $50 for selling another call).
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