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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

#41

Post by avereveard »

pjc50 wrote: post #12
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…

The collateral requirement was imposed because of the incredibly high chance of the stock simply collapsing again. Trading halts in response to massive movements aren't unusual either.

but they blocked stock purchases alongside options, which makes no sense if the justification was collaterals for options

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

#42

Post by ycombobreaker »

csours wrote: post #26
katbyte wrote: post #23

Earlier quoted context omitted.

I've only been sorta paying attention so i could be wrong but trades were not suspended or halted? only buying was prevented, and only for some brokerages?

Trades at the exchange level were repeatedly halted over the course of two weeks or so of the most volatile trading. Trades by certain brokers or apps were also notably halted on a Thursday due to lack of liquidity.

Exchanges repeatedly halted for brief periods, based on predetermined rules. That part was nothing special, it's something like 5 minutes at a time,

Buying to open new positions was blocked by some brokers in response to the the bump in collateral requirements they were required to fulfill. Some brokers were capable of blocking only margin account trading, but RH sounds like they blocked all buyers (plus their target market is margin account holders)

DTCC is basically interested in ensuring that trade settlement occurs. They eliminate a lot of counterparty risk, but the flipside to that is that they clearly have discretion that surprises brokers.

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

#43

Post by tptacek »

sillysaurusx wrote: post #24
tptacek wrote: post #16

Earlier quoted context omitted.

NSCC collateral rules are widely believed to follow directly from Dodd-Frank requirements. It's also hard to understand the supposed conspiracy you'd be prosecuting NSCC for. Is the idea here that NSCC was somehow corrupted by agents of hedge funds short on GME?

Nah, no conspiracy. I just don't like that they can change their collateral requirement from 3% to 100% for specific stocks in one day, regardless of the reasons. To turn it around: should they have the authority to enforce a 33.3x collateral increase with no oversight simply because they feel it's necessary for the world to stop trading GME? This is the heart of what I hope will be regulated. BTW, playing whiskey sl…

I don't understand why you believe NSCC "felt it was necessary for the world to stop trading GME".

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

#44

Post by sillysaurusx »

voiper1 wrote: post #36
csours wrote: post #25

Earlier quoted context omitted.

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…

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

I highly recommend https://youtu.be/4RS4JIEVyXM?t=60 -- I didn't understand any of this myself till watching that. (Still don't! But I'm less confused.)

My understanding is that the clearing firm informs everyone "Hey, we no longer support opening positions in three stocks specifically: GameStop, AMC, and KOSS."

Literally everyone, including Robinhood, was forced to only allow people to sell GME.

Somehow Fidelity was the only market maker to avoid this -- you couldn't buy GME anywhere else due to the clearinghouse's decision.

(Why was Fidelity the only broker able to sidestep the clearinghouse's decision? An interesting mystery; perhaps someone here knows the answer.)

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

#46

Post by ummonk »

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…

There are formulaic requirements based on volatility and risk, but those aren't specific to one stock. The clearing exchange exercised discretion in applying a new collateral requirement, and in doing so put its thumb on the scale.

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

#47

Post by ummonk »

stingraycharles wrote: post #15
pjc50 wrote: post #12

Earlier quoted context omitted.

The collateral requirement was imposed because of the incredibly high chance of the stock simply collapsing again. Trading halts in response to massive movements aren't unusual either.

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

It was an ad-hoc decision to go beyond the formulaic requirements.

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

#50

Post by sillysaurusx »

DavidSJ wrote: post #39
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?

I think the requirements were calculated at the brokerage level and not the individual customer level.

One level up, I think!

Think of it like a pyramid: the clearinghouse sits at the top, the brokers are in the middle, and the rest of us dirty peasants sit at the bottom where we belong.

The clearinghouse covers 95% of trades on Wall Street. So the clearinghouse issued a decree: "we are no longer able to support opening positions for GME, AMC, and KOSS."

Since most brokers use this clearinghouse, that means almost all brokers were forced to prevent customers from buying GME.

Everyone: pikachu face

The brokers have no choice. https://youtu.be/4RS4JIEVyXM?t=96

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