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Robinhood Raises Another $2.4B from shareholders

wsj.com

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Re: Robinhood Raises Another $2.4B from shareholders

#61

Post by swampthing »

jessaustin wrote: post #46
SEJeff wrote: post #14

Earlier quoted context omitted.

> It puzzles me how people still think Robinhood can remain competitive knowing they sell user's order flow to hedge funds Many brokers do this. They get better execution services from hedge funds / electronic traders than they could possibly build themselves. Given rules like NBBO for equities, this can really matter. It saves them money in engineering a hard problem AND makes them money from the other side.

You cut off the end of the proposition: "...and restricted free market movement of capital in the markets." It is relatively common for brokers to sell order flow. It is not unheard of for brokers to stop trading in a security for limited periods. It is very strange for brokers to enforce one-way trading in a security as Robbinhood did, and highly suspicious on top of that when the resulting asymmetric trading regime…

That is the narrative that the mob would like you to believe, but it's actually not true. Here are some examples of that happening in the past:

* https://mobile.reuters.com/article/amp/idUKKCN2253T2 * https://mobile.reuters.com/article/amp/idUSKBN1FT2S4

Robinhood was in a no-win situation. You can read about why they were forced to restrict buying here: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...

If they restricted sells too, they would have been lambasted, likely even more than they currently are, by people trying to get out of their positions either to capture gains or avoid loss.

Robinhood's only move was to mitigate the fall-out with customers through messaging, which they failed miserably at. It's unclear to me whether this failure was due to incompetence or because they were (or thought they were) restricted from providing certain information by law or contract.

Re: Robinhood Raises Another $2.4B from shareholders

#62

Post by Accujack »

ZephyrBlu wrote: post #51
Armisael16 wrote: post #36

Earlier quoted context omitted.

>It's not supposed to be possible to go over 100% any more since 2008, by the way. This is fundamentally untrue. Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all. If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.

To clarify, this is not considered a naked short because in this situation there is a share that is known to exist. Re-borrowing the same share does not make it a naked short.

It has to not only exist, but be obtainable.

In any case, the important limit here is that financial firms are not supposed to allow hedge funds or other entities to assume short positions for more stock than exists, because if it becomes necessary to execute the trades to resolve the shorts, that extra 40% will fail to deliver, because those shares don't exist.

The SEC actually keeps a list of trading companies with high rates of failure to deliver as a means of detecting naked shorting.

Re: Robinhood Raises Another $2.4B from shareholders

#63

Post by kcg »

alex_young wrote: post #53
Armisael16 wrote: post #36

Earlier quoted context omitted.

>It's not supposed to be possible to go over 100% any more since 2008, by the way. This is fundamentally untrue. Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all. If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.

> If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved. Naive question: Why would that ever happen? Wouldn't this scenario just cost person C commissions with no opportunity for gain?

In this scenario, Person C still owns the stock and will gain/lose with the stock's rise/fall. Person A borrowing from C at the end is just borrowing, not buying. At some point Person A needs to return stock to Person C.

Re: Robinhood Raises Another $2.4B from shareholders

#64

Post by SpicyLemonZest »

SkyPuncher wrote: post #52
SpicyLemonZest wrote: post #43

Earlier quoted context omitted.

I think you need to seriously consider the possibility that the people spreading this narrative are doing so dishonestly in order to pump the stock. Short interest is now far below 100% ( https://www.bloomberg.com/news/articles/2021-02-01/gamestop-... ), yet /r/wallstreetbets is still full of hold memes rather than victory speeches.

> Short interest is now far below 100% With all due respect, this is still speculative. We won't know the exact numbers for another week.

The exact number definitely isn't known, given that the Bloomberg article includes two estimates of 39% and 50%. I'm not familiar with how these numbers are generated; is it plausible that the real number could be close to 100% even with such low estimates?

Re: Robinhood Raises Another $2.4B from shareholders

#65

Post by 314 »

dpiers wrote: post #49
Armisael16 wrote: post #36

Earlier quoted context omitted.

>It's not supposed to be possible to go over 100% any more since 2008, by the way. This is fundamentally untrue. Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all. If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.

Call it a scantily-clad short then. A share that is already lent out to a short seller should not be eligible to be lent out again for the same reason I can't get two mortgages to buy the same house - the underlying collateral would be owed to multiple parties.

This is not true. Party A has a contract that party B owes them a share - not the share that they originally loaned. The whole idea is for party B to buy a share later to balance the trade.

A better analogy to understand why short interest can rise above 100% is fractional reserve lending and the effect that it has on money supply.

Re: Robinhood Raises Another $2.4B from shareholders

#66

Post by rokobobo »

dpiers wrote: post #49
Armisael16 wrote: post #36

Earlier quoted context omitted.

>It's not supposed to be possible to go over 100% any more since 2008, by the way. This is fundamentally untrue. Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all. If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.

Call it a scantily-clad short then. A share that is already lent out to a short seller should not be eligible to be lent out again for the same reason I can't get two mortgages to buy the same house - the underlying collateral would be owed to multiple parties.

A share is a share is a share. You can’t tell which one was loaned out and which one wasn’t. And it’s not used as collateral, money is posted as collateral instead.

Re: Robinhood Raises Another $2.4B from shareholders

#67

Post by Accujack »

SpicyLemonZest wrote: post #43
Accujack wrote: post #27

Earlier quoted context omitted.

Yes. If you read what the ultimate intent of the /r/wallstreetbets crowd is, they're not just trying to exercise the same right to make money off of the financial system that billionaires have. A year ago, the person that started this detected a situation where GME was a company that didn't have long term prospects, wasn't losing money, but was still shorted to 140% of it's value. It's not supposed to be possible to…

I think you need to seriously consider the possibility that the people spreading this narrative are doing so dishonestly in order to pump the stock. Short interest is now far below 100% ( https://www.bloomberg.com/news/articles/2021-02-01/gamestop-... ), yet /r/wallstreetbets is still full of hold memes rather than victory speeches.

Also the possibility that people spreading the narrative that people are dishonestly spreading narratives to pump the stock.

My summary above is rough, and it's based on most of the information I've read about the situation. As always, there are voices on both sides for every single fact.

Time will tell how this all falls out, but right now there are a lot of finance firms grinding their teeth, which is a victory in itself.

Also, apparently Gamestop itself used the gain in stock price to settle some debts by being able to issue more stock to meet demand at the higher price, thus getting a cash infusion.

Re: Robinhood Raises Another $2.4B from shareholders

#68

Post by paulie_a »

loceng wrote: post #5

This is a fascinating game to watch. I watched The Big Short yesterday for the first time, as it's trending on Netflix and was suggested, and this moment feels similar to exposing a weakness in the system that needs to be addressed - and hopefully not to strengthen the wrong position; I didn't realize the incredible actors cast for it, obviously they took on the roles as it's an incredibly important story for the gen…

The boiler room is a better version of the wild of wallstreet

Re: Robinhood Raises Another $2.4B from shareholders

#69

Post by kcg »

Accujack wrote: post #62
ZephyrBlu wrote: post #51

Earlier quoted context omitted.

To clarify, this is not considered a naked short because in this situation there is a share that is known to exist. Re-borrowing the same share does not make it a naked short.

It has to not only exist, but be obtainable. In any case, the important limit here is that financial firms are not supposed to allow hedge funds or other entities to assume short positions for more stock than exists, because if it becomes necessary to execute the trades to resolve the shorts, that extra 40% will fail to deliver, because those shares don't exist. The SEC actually keeps a list of trading companies with…

> that extra 40% will fail to deliver, because those shares don't exist.

That's only true if you force all shorts to be covered at once without a chain of trades. That's not how it happens.

Person A covers their short by buying a share from Person B and returning to Person C. Person D then buys that share from Person C and returns to Person E to cover their short. That's 2 short shares covered with a single underlying share and no failure to deliver.

Yes, the SEC does track failure to deliver, but >100% short interest does not mean there is naked shorting nor does it imply there will be failure to deliver.

Re: Robinhood Raises Another $2.4B from shareholders

#70

Post by [deleted] »

alex_young wrote: post #53
Armisael16 wrote: post #36

Earlier quoted context omitted.

>It's not supposed to be possible to go over 100% any more since 2008, by the way. This is fundamentally untrue. Abusive naked shorting with the goal of driving down prices is illegal. >100% short interest doesn’t require naked shorting at all. If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved.

> If person A borrows a stock from person B then sells it to person C, they can borrow the stock back from person C and sell it again. No naked short involved. Naive question: Why would that ever happen? Wouldn't this scenario just cost person C commissions with no opportunity for gain?

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