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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

#81

Post by SomeHacker44 »

devman0 wrote: post #40
300bps wrote: post #27

Earlier quoted context omitted.

You can open an Ameritrade or any other brokerage account and deposit money into the account with no intention of purchasing securities. There is no dispute that the SIPC would cover your account in that instance. The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities. It’s not black and w…

I'm not sure how Ameritrade works, but the other brokers I've used (Fidelity, Schwab, and Vanguard) you either have an 'uninvested' position where your cash is parked (generally a federal money market fund) or bank sweep that is FDIC insured. They never actually hold cash for you it is either in a money market or a bank sweep.

This.

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

#82

Post by alehul »

peteradio wrote: post #21

Is this how it works?? consumer securities purchases protected by sipc robinhood bank checking format: deposit: money -> account -> robinhood backend securities purchased withdrawal: robinhood backend securities sold -> account -> money Is this the argument made by robinhood? Perhaps if that is laid out clearly in contract, i.e. robinhood is granted agent status to purchase and sale securities on behalf of consumer

Receiving agent status to purchase and sell securities on behalf of the consumer would mean the consumer is consenting to possible losses from the performance of those securities.

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

#83

Post by ticmasta »

wallawe wrote: post #31
caymanjim wrote: post #3

Another example of startup hubris. Much like Uber and AirBnB got started (and in many cases, continue to operate) by flouting regulations, Robinhood thinks they're being innovative, when they'll really just hoping they can get big enough that they can buy or bully their way past the rules. At least long enough to get acquired. It might work, but in this case, the people most likely to get screwed are the customers.

AirBnB and Uber are both examples of companies that were huge wins for customers/consumers. Just because they flout regulations which are often times outdated and unnecessary (re: protecting inefficient incumbents) doesn't mean they aren't doing what's good for the consumer. I agree though that Robinhood is a different story with potentially harmful consequences for unsophisticated investors looking for a safe/easy i…

If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way?

These companies are not democratizing investment, accommodation, tranportation or whatever they are rent seekers that use a combination of technology, business model and rule breaking to extract a portion of every transaction.

They explicitly position themselves as 3rd party to the transaction. While the rest of us suckers play by the rules or gasp work to change them, they realize a portion of their advantage by just ignoring them.

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

#84

Post by ummonk »

all_blue_chucks wrote: post #34
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…

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

Well, we're in a strong economy so of course the default rate will be near-zero. What happens if there is a financial or economic crisis and companies start defaulting?

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

#85

Post by eclipticplane »

kinkrtyavimoodh wrote: post #61
scrumper wrote: post #59

Earlier quoted context omitted.

Single stock trading sold as an investment product to the low-end of the retail market (i.e. people like me who's limited investment dollars should be dumped into passive, diversified funds.)

As a user of RobinHood I have not felt any specific push for buying single stocks. A lot of people just buy index funds on RobinHood. If RH had made it more difficult to buy those compared to single stocks, your claim might have some weight...

Push notifications around a pre-defined 'watch list'? Notifications of major stock movements? Showing 'popularity' of a stock? 'Most Popular Under $25'? Gifting people free stock for referrals?

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

#86

Post by vec »

Swquenzer wrote: post #58
kinkrtyavimoodh wrote: post #38

Earlier quoted context omitted.

> bad idea about personal finance Such as?

Idk why this was downvoted, but I would like to know as well. I feel like a know a decent amount about personal finance, and Robinhood is amazing. Primarily, I can trade stocks with zero fees. The app is easy to use. It's not outwardly pushing me to make bad decisions as far as I can tell. If there are issues on the business side, that's a separate concern(?)

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 to say that the median day trader would have made more money by buying an index fund and sitting on it for a decade.

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

#87

Post by skywhopper »

all_blue_chucks wrote: post #34
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…

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

You're assuming they are just holding onto all the deposits and buying these bonds... that strikes me as extremely unlikely.

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

#88

Post by gus_massa »

stakecounter wrote: post #42

Assuming patio11’s comment[1] from yesterday is correct that this is a loss leader intended to target millennials with low value accounts rather than whales, maybe this is Robinhood’s intended outcome to make it less attractive to the customers they don’t want? [1] https://news.ycombinator.com/item?id=18673426

It may be true, but it's not relevant for the current article. The questions is if these accounts will be insured by the FDIC or the SIPC or neither?

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

#89

Post by ucaetano »

Which leads to one of two scenarios:

1) They knew SIPC wouldn't cover it, but decided to lie about it anyway

2) They weren't competent enough to assess the risk that SIPC wouldn't cover it, but decided to launch anyway without contacting the SIPC

Regardless of which is the truth, I wouldn't trust my money with someone who does either. Might as well jump into a tried-and-true pyramid scheme like bitcoin!

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

#90

Post by skywhopper »

all_blue_chucks wrote: post #34
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…

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

For what it's worth, the point of deposit insurance is not to mitigate against typical situations where bonds behave "like normal" and stick to their typical default rate. The FDIC and SIPC were founded in response to what happens when everyone just turns a blind eye and says "oh, that's totally safe, risk is _near_ zero!"
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