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Robinhood, in Need of Cash, Raises $1B from Its Investors

nytimes.com

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Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#361

Post by disgrunt »

rattray wrote: post #331
rtkwe wrote: post #312

Earlier quoted context omitted.

They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. e…

> They have to have a certain amount to cover the value of all the stocks held by their clients Huh? I don't understand this. What do they have to hold and why?

It's a Dodd-Frank rule apparently. [0]

[0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#362

Post by jkestner »

rattray wrote: post #331
rtkwe wrote: post #312

Earlier quoted context omitted.

They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. e…

> They have to have a certain amount to cover the value of all the stocks held by their clients Huh? I don't understand this. What do they have to hold and why?

It’s an SEC rule to guard against brokers going insolvent. Trades are not instant transactions so there’s a lot of credit being floated for days. Good thread explaining this, though still complex: https://mobile.twitter.com/KralcTrebor/status/13549526861652...

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#363

Post by awb »

peytn wrote: post #37
ajsharp wrote: post #24

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of the…

I’m not keeping my money with a financial institution that lies to me. End of story. Transfer initiated on my cash, and I’ll deal with moving stocks in the morning.

Chamath would agree with you: https://twitter.com/chamath/status/1354947541125611526?s=20

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#364

Post by disgrunt »

iNic wrote: post #282
michaelt wrote: post #266

Earlier quoted context omitted.

> Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line. Perhaps you can help me understand something. In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at…

The people using Robinhood are to some degree trading on margin, that means that they are trading with money they don't have in their account, which means that Robinhood also does not have it, at least not from you. They need to have a buffer of money to deal with the borrowing, which in this case they almost ran out of.

In this case, it has nothing to do with trading on margin and everything to do with Robin Hood having to cover 10% with the NSCC per the Dodd-Frank rule. [0]

[0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#365

Post by disgrunt »

rattray wrote: post #335
IG_Semmelweiss wrote: post #314

Earlier quoted context omitted.

Correct. And more to the point, RH cannot use customer funds to cover that timeframe. It must be its own funds. And the requirement of funds to be covering (collateral) can change on them with very little warning

Who determines the collateral required?

In this case, the NSCC, or the NAtional Securities Clearing Corporation.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#366

Post by kryogen1c »

slfnflctd wrote: post #353
kryogen1c wrote: post #345

Earlier quoted context omitted.

>Everyone talking about what GME is 'actually worth' is spouting bullshit. The fact is, no one knows. Because it's up to the market. youre right in that no one, least of all me, can predict future stock prices, but i think youre missing the point. even if GME stabilizes at $150 - which is an unlikely tripling of value - most of the people involved are going to lose most of their investment. the fundamental principal…

> the only way this doesnt happen is if the original market was wrong about GME to the tune of 1000% The reason I used TSLA as an example is because this is pretty close to what happened there! The future scenarios 'priced in' to that company now are several degrees beyond ludicrous. I don't think I'm missing the point at all, which to me is: massive swaths of the entire market are super irrational right now, and hav…

> massive swaths of the entire market are super irrational right now, and have been for a while, with no end in sight.

good point. youre making me second guess myself, but i think in the end GME's case is just too extreme. it mightve been undervalued at $20, but i just dont see the volume of positions >$200 as defendable or profitable. even if the gamma drives the price bananas high today, the end result will just be an even larger crash at the end.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#367

Post by disgrunt »

peytn wrote: post #37
ajsharp wrote: post #24

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of the…

I’m not keeping my money with a financial institution that lies to me. End of story. Transfer initiated on my cash, and I’ll deal with moving stocks in the morning.

I'd be more concerned with how illiquid Robin Hood apparently is here.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#368

Post by KingMachiavelli »

kangaroozach wrote: post #128

Prediction: Robinhood loses class action and is bought by Schwab for pennies after founders plea bargain for 3 months prison and $20M in fine each and disappear into the ether like Adam Neumann.

I would actually love if some actually reputable brokerage bought Robinhood and just offered it as an (optional) interface to their current trading platform. It's no doubt that part of Robinhood's success is that the UI is much better than a lot of current trading platforms.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#369

Post by CivBase »

ajsharp wrote: post #24

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of the…

"Guys, we had to lie to everyone! It was for PR!"

And why exactly did they have to let people sell GME shares? In light of the current situation, it sounds to me like the responsible and impartial thing would have been for them to temporarily suspend all trading of GME - not just buying.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#370

Post by aphextron »

ajsharp wrote: post #24

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of the…

Robinhood is a joke. Not just because of these shenanigans, but because their lack of technical stability and customer service is unacceptable. They reliably crash on every major trading day. And there's no US based support.

Never ever use a broker where you can't pick up the phone and talk to a real human being. They all have zero commissions now so there's no excuse.

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