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It’s Time for Real Time Settlement

blog.robinhood.com

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Re: It’s Time for Real Time Settlement

#251

Post by tylerhou »

Miner49er wrote: post #78
tylerhou wrote: post #51

Earlier quoted context omitted.

Why do you think the stock was “over shorted” apart from the fact that short interest is generally not that high? Or — what do you think are the bad consequences of “over shorting?”

> Why do you think the stock was “over shorted” apart from the fact that short interest is generally not that high? It was the highest shorted stock on the market. That is "generally not that high"? I think the fact that retail investors were able to cause a short squeeze on it, that cost shorts many billions of dollars, is an indication that it was over shorted. > Or — what do you think are the bad consequences of “…

Short squeezes are not good for the market, period, but they only happen in extraordinary circumstances. And actively encouraging people to cause short squeezes in order to reduce the potential for future short squeezes seems... counterproductive.

If you want to reduce the number of people shorting a stock, creating artificial short squeezes would work, yes, but then I again ask: why do we want to prevent people (or hedge funds) from shorting a stock so much? What does that accomplish in the bigger picture?

The logic is almost like: we want there to be fewer car crashes, and more cars = more crashes. If we ourselves cause crashes, drivers will be afraid to drive, so therefore we will have less crashes.

Re: It’s Time for Real Time Settlement

#252

Post by mattnewton »

matwood wrote: post #241
gher-shyu3i wrote: post #195

Earlier quoted context omitted.

> who took the view that all short positions were ursary It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there. Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up. Furt…

> Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. Companies that have inefficiently deployed capital or have problems like a Theranos or Enron should collapse. People keep acting like shorts show up to a company like Apple and take it down. That's not at all what happens. Shorts are a lot like v…

The shorts don’t take money from the company, they take money from people unfortunate enough to invest in a failing company. In some cases that money could have helped the company land, in others it was going towards something doomed and possibly fraudulent, but either way it doesn’t come from the companies coffers directly unless the company does a buyback from the shorts. The people losing money are other investors.

What if smart money had to bet on a competitor or growing some other investment instead?

Re: It’s Time for Real Time Settlement

#253

Post by stouset »

kbar13 wrote: post #130
stouset wrote: post #109

Earlier quoted context omitted.

Vanguard’s app works fine for me. Sure it’s not gamified or meme-ready but maybe “investing your life savings” as a category shouldn’t be?

i have a vanguard account with most of my investments, with like 10% in robinhood for gambling. the way i think about it is vanguard works fine (theres some bugs but not end of the world). but it is not optimized for timed trades. it works well enough for me to put in a big chunk of money on a recurring basis or liquidate funds for use elsewhere. robinhood allows me to easily trade off of market emotion or do options…

Maybe—just maybe—we shouldn’t be encouraging the general public to trade options? Triply so with margin accounts?

This is isn’t “democratizing finance”. It’s literally just a wealth transfer from the poor to the rich. It’s putting fish at a poker table full of professional sharks backed by billions of dollars and teams of analysts, and encouraging the fish to put their life’s savings on table.

Index funds are boring as fuck, but have done more to put market returns in the hands of the average member of the public than anything in the history of finance.

I’m not saying people who want to shouldn’t be allowed to trade options. But putting the ability in the hands of anyone who has zero financial experience but can download an app isn’t helping things.

Re: It’s Time for Real Time Settlement

#254

Post by IgorPartola »

tptacek wrote: post #214
IgorPartola wrote: post #205

Earlier quoted context omitted.

Which is why they shouldn’t have restricted it at all. Volatility is the name of the game. If they can only trade equities with predictable prices they are probably in the wrong business. And where the price is now is arguably the direct result of their actions. The price would be higher if they didn’t restrict buys while allowing hedge funds to gobble up the panicked sells from retail investors. Judging by the senti…

They had no choice but to restrict buys. They're subject to clearing collateral requirements based in large part on stock volatility. People keep saying RH should have just left it all alone, but if they had, they'd have been insolvent.

Ok but the idea that you can’t buy stock at a time when it is most advantageous to buy it seems like a flaw in the system. So what is the solution then?

Re: It’s Time for Real Time Settlement

#255

Post by beezle »

JumpCrisscross wrote: post #120

Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.) If you only think about the American stock market from the perspective of a…

Which comes first? The trade or the settlement? Are you going to instantly reverse the trade too if they payment doesn't come through? What happens when there is a fiber cut or other network issue? Trading halt because one broker can't connect? Or just that broker's clients get stuck?

Re: It’s Time for Real Time Settlement

#256

Post by tptacek »

IgorPartola wrote: post #254
tptacek wrote: post #214

Earlier quoted context omitted.

They had no choice but to restrict buys. They're subject to clearing collateral requirements based in large part on stock volatility. People keep saying RH should have just left it all alone, but if they had, they'd have been insolvent.

Ok but the idea that you can’t buy stock at a time when it is most advantageous to buy it seems like a flaw in the system. So what is the solution then?

Using brokerages that are sufficiently capitalized to clear the trades you want to make. You might have to pay fees to do that. Having other people assume credit risks on your behalf usually costs some money.

Re: It’s Time for Real Time Settlement

#257

Post by danhak »

u10 wrote: post #250
danhak wrote: post #243

Earlier quoted context omitted.

If investors believe shares of these companies are a ripoff, they can sell any holdings and / or abstain from buying. Just like they can do in nearly every other type of market. If a used car salesman is trying to rip me off, I walk away from the deal. I don't need to be able to short his inventory! And the supply / demand dynamics of the used car market will trend toward equilibrium without any such shorting.

ok, but what incentives does anyone have to actually look at potentially fraudulent situations, especially if the stock is ripping, as in the case of Valeant Pharmaceuticals? In fact the incentives are so perverse that it pays _not_ to state your research on why the company is not worth what it is. Even the time value spent on research is non trivial. Your example would make more sense if the car they were selling a…

The incentive already exists in the form of long investors doing their due diligence.

Re: It’s Time for Real Time Settlement

#258

Post by swampthing »

JumpCrisscross wrote: post #207
swampthing wrote: post #202

Earlier quoted context omitted.

"nearly goes under because it over extended itself" is not really accurate. They took the steps necessary to prevent that from happening, by blocking the behavior that would have led to that. Unfortunately, those steps, in combination with poor communication on Robinhood's part, and emotion, ignorance, and paranoia on the part of the general public, has led to a PR crisis for them.

It's as accurate as it is inaccurate. Had Robinhood not been able to find hundreds of millions of dollars of cash that day, they would have been declared insolvent.

I don't think that's true. They raised the additional capital so that their customers could continue buying shares of those 8-50 companies. Had they not raised that capital, they would have just had to keep blocking those buys, but they would have been fine otherwise.

Re: It’s Time for Real Time Settlement

#259

Post by kasey_junk »

mattnewton wrote: post #252
matwood wrote: post #241

Earlier quoted context omitted.

> Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. Companies that have inefficiently deployed capital or have problems like a Theranos or Enron should collapse. People keep acting like shorts show up to a company like Apple and take it down. That's not at all what happens. Shorts are a lot like v…

The shorts don’t take money from the company, they take money from people unfortunate enough to invest in a failing company. In some cases that money could have helped the company land, in others it was going towards something doomed and possibly fraudulent, but either way it doesn’t come from the companies coffers directly unless the company does a buyback from the shorts. The people losing money are other investors…

That’s a fine position to take so long as you recognize the vast majority of long money also doesn’t go to the companies coffers unless the do another offering.

Your argument isn’t a moral one.

Re: It’s Time for Real Time Settlement

#260

Post by JumpCrisscross »

cameldrv wrote: post #228
justapassenger wrote: post #210

Earlier quoted context omitted.

It’s only for small money transfers, up to $25k last time I’ve looked at it.

For bigger transfers, the $10-20 fee for a fedwire is no longer much of a factor, so people will just use that.

> the $10-20 fee for a fedwire is no longer much of a factor

That is almost entirely your bank charging a mark-up.

The Fed charges its members between 3.3¢ and 84¢ per wire, depending on things [1]. (It can go as high as $1.20 for a $100+ million wire from a bank that handles fewer than 14,000 wires a month.)

My bank, for instance, doesn’t charge anything for wires.

[1] https://www.federalreserve.gov/newsevents/pressreleases/file... page 34

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