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SIPC Says It Has Serious Concerns About Robinhood's New Product

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Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#251

Post by nodesocket »

bbaumgar wrote: post #131
tomtimtall wrote: post #79

Earlier quoted context omitted.

If they make a ton of money but give users an easy 3% account I wont complain. Why is everyone so mad at them for being successful when they are offering cheaper services then the rest of the market!? Do they need to hire a homeless CEO to actually qualify as doing something good for society overall?

They are exposing a vulnerable and naive class of investors to a higher-risk asset class in an arguably deceitful way. If their 3% account was SPIC protected (and therefore low-to-no risk), this would be a totally different conversation.

I have a money market account at Capital One that earns 2% and is FDIC. Staying there.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#252

Post by ineedasername »

Their page [0] on the new product still mentions both SIPC and FDIC in numerous places. If I wasn't following this news, the clear implication I'd get is that my account was both FDIC and SIPC insured. This is really irresponsible of Robinhood.

[0] https://blog.robinhood.com/news/2018/12/13/introducing-robin...

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#254

Post by whatok »

bronson wrote: post #239
whatok wrote: post #234

Earlier quoted context omitted.

Under the hood vs how they function in everyday situations are completely different things. If I sock away $100 a month for the next 12 months to pay for something, which one is more likely to have >=$1200?

That depends on what you mean by "sock away".

Thought was implied but money market funds vs corporate bond funds.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#255

Post by snowwrestler »

ineedasername wrote: post #248
PaulHoule wrote: post #213

Earlier quoted context omitted.

SIPC insurance is entirely different from FDIC insurance. FDIC insures the value of your deposits. SIPC covers the case where your broker or mutual fund cannot keep operating (eg. pay the help) In a case like that all of your stocks and bonds are still there and have most of their value, but you can't get at them because there is nobody to process the transaction. Somehow the holdings need to be transferred to anothe…

You seem to be indicating that SIPC wouldn't protect the liquid (cash) assets in the account, only reunite you with your stocks/bonds/etc. Based on the SIPC site [0] this is incorrect, and they get you your cash as well: " SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins" [0] https://www.sipc.org/for-investors/what-sipc-protects

This is correct but most people don't carry a lot of cash in their brokerage account for very long. They either use it to acquire securities, or they move it out to a real bank account. So SIPC is not equipped, financially or logistically, to act like the FDIC.

Incidentally, here is a really good article about what happens when the FDIC takes over a bank:

https://www.npr.org/templates/story/story.php?storyId=102384...

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#256

Post by SpaethCo »

acjohnson55 wrote: post #103
panarky wrote: post #75

Robinhood's offering is indistinguishable from a cash management account at a brokerage. Short-term deposits, check writing, debit card, interest bearing, etc. Fidelity Investments pioneered this product, and now it's available from others like Schwab. But at Fidelity, the cash management account is distinct from the brokerage account. While the brokerage account is insured by the SIPC, cash management funds are swep…

It seems like RH is taking this to the next step (at least with respect to Fidelity) by building typical checking account features around it, with parameters that are best-in-class.

Fidelity already has best-in-class checking account features?

The CMA account has mobile image deposit, free online bill pay, check writing (with free checks), free ACH transfers, free wire transfers, ATM/debit card (with ATM fee reimbursement at any ATM worldwide, no less), etc.

The only “best-in-class” factor that Robinhood has presented is setting the interest at 3%.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#258

Post by hn_throwaway_99 »

avar wrote: post #236
hn_throwaway_99 wrote: post #13

Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland ref…

> When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland refused to make depositors whole. That's a very inaccurate recalling of history which you can see from reading the intro to the relevant Wikipedia article[1] and a summary of the EFTA Court's decision on the matter[2]. The case centered around a dispute between mainly Britain, The Netherlands…

I read both your links, and I don't think my characterization is an inaccurate recalling of history at all. From the second and third paragraphs of that wikipedia page:

----

When Landsbanki was placed into receivership by the Icelandic Financial Supervisory Authority (FME), 343,306 retail depositors in the UK and Netherlands that held accounts in the "Icesave" branch of Landsbanki lost a total of €6.7bn of savings. Because no immediate repayment was expected by any Icelandic institutions, the Dutch and British national deposit guarantee schemes covered repayment up to the maximum limit for the national deposit guarantees – and the Dutch and British states covered the rest.[1]

The Icelandic state refused to take on this liability on behalf of the guarantee fund. Originally this was because the state lost funding access at credit markets due to the Icelandic financial crisis, but later proposed bilateral loan guarantees for repayment were rejected by Icelandic voters.

----

At the end of the day there were a ton of foreign depositors who felt like these were just normal savings accounts with higher rates, but when the financial crisis came they were in a much more difficult position than people who used domestic banks.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#259

Post by vec »

wuliwong wrote: post #122
vec wrote: post #86

Earlier quoted context omitted.

Offering stock trades with zero fees is pushing you to make a bad decision. The vast, vast majority of investors should be making as few trades as is humanly possible, and the small fraction who should be making frequent trades are essentially by definition working with large enough sums of money that the brokerage fees are negligible. This isn't to say you can't make money as an individual by day trading, but it is…

I don't know. It seems like mental gymnastics to say that zero fees hurts someone without a lot of money. It sounds more like you believe that people with access to limited capital can't understand the markets as well as people with access to large amounts of capital. If you didn't believe that I think you would conclude lowering the fees for trading opens up the possibility for less wealthy people to participate in…

I do believe that people with limited access to capital can't understand the markets as well as institutional investors, and you should too. It's not about intelligence, it's about access. The rich have more current information about state of the market than you do and can act on that information sooner than you are able to, which allows them to systematically make slightly better trades than you can.

Stock trades aren't instantaneous, and they're not guaranteed to resolve in the order they were submitted. Wealthy traders can throw money at a combination of locating their servers physically closer to the exchanges and just straight up purchasing preferential treatment from them in order to ensure that their trades will always resolve ahead of yours. Moreover, the "price" of a stock is essentially the rolling average of all the buy and sell offers currently in open. When you "buy" a stock from Robin Hood, what you're actually doing is creating an offer to purchase at or below a specified price point.

One of Robin Hood's main sources of revenue is providing access to that stream of trade offers to investment firms who can use it to "predict the future" in ways that will systematically erode your profit margins. There are any number of ways this happens, but probably the easiest one to understand is that after they see you place a buy offer they can use their position near the front of the queue to accept the cheapest available sell offers ahead of you and immediately resell them to you at your offered price, pocketing the difference.

That's the catch with normal humans trying to play the stock market. You can't actually participate in the same way that wealthy institutional investors do, because you can't afford to pay to be near the front of the queue. In fact, the way you participate essentially guarantees that, no matter how well you do, the institutional investors will be able to do slightly better.

One way to work around this is for normal humans to pool their resources so that they can collectively act as a wealthy institutional investor too. That's essentially what index funds are.

Re: SIPC Says It Has Serious Concerns About Robinhood's New Product

#260

Post by microtherion »

whoisjuan wrote: post #183
bashook wrote: post #172

Earlier quoted context omitted.

In applying Hanlon's Razor[0], I think the conversation went: A: Are our customers accounts insured? B: Yes, through SIPC, which is like FDIC for brokerages. A: Great! Let's create this product. No more questions were asked. [0] http://catb.org/jargon/html/H/Hanlons-Razor.html

I would hope that wasn't the case and that they actually consulted all this with specialized lawyers. You just don't launch a financial product of this nature, out of your ass like that. If that was the case then Robinhood customers have legitimate reasons to be concerned about the safety of their funds and securities. (For the record, I'm on of those Robinhood customers).

> You just don't launch a financial product of this nature, out of your ass like that.

… not without prominently mentioning the block chain, at least.

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