Multiple brokerages shut down buying due to the collateral requirements that were raised. Robinhood seems like the fall guy here, hopefully people start asking the right questions about the collateral and the manipulation there.
other brokerages simply put up the money. this meant that while huge swaths of the retail investors in the US (and parts of Europe) were not allowed to buy GME, other retail investors had no issues.
to top it off, certain brokerages only allowed sell orders.
this meant a huge imbalance in the market.
i really don’t get how this is legal and why heads aren’t rolling.
case in point: saxo bank let me trade GME without an issue. but since most brokerages did not put up the new collateral, and only allowed sell...
basically this is a case of market manipulation by way of changing the rules in realtime.
i get why they changed the rules, i don’t get why the SEC is not removing the authorisation of the participants in this scheme and also not prosecuting the companies.
i’m clearly missing some info here and need to read some more on this subject.
Nope, multiple other brokerages including Interactive Brokers also suspended options trading and opening any new positions in the so-called "meme" stocks.
So what are you proposing? All brokerages must put up the collateral no matter what? Surely it is up to the individual businesses whether they can afford to, want to take the risk, etc.
Some people seem to be suggesting that when RH got the collateral call for funds they didn't have on hand, they should have instantly gone into receivership and wound the whole operation down, closing all accounts. Or something like that. They probably don't mean that, but it's the logical conclusion of what they're saying. Always have the required collateral or face instant annihilation.
No brokerage is under any obligation to use their own funds as collateral in order to allow you to trade using unsettled funds or margin on highly volatile securities. A brokerage could be left holding a huge bag here if they put up their own funds to allow someone to buy GME, then the incoming unsettled funds from the customer bounce, and now the brokerage is left holding shares of GME worth $100 or whatever and they've incurred a huge loss.
You are NOT entitled to trading with a brokerage's funds as if they were your own.
For margin trading, sure, but IIRC Robinhood halted all trading, even with your own money.
I think it has more to do with Robinhood giving away free trading, while the trades themselves have a non-zero variable cost to Robinhood. Since their revenue comes from selling insightful user trade data, a run on GME isn't insightful and had diminishing returns (my hypothesis anyways).
I’ve seen claims that having settled funds doesn’t matter, that the brokerage must keep collateral at the clearinghouse and they cannot use customer’s money to do it: https://news.ycombinator.com/item?id=25981493. The clearinghouse suddenly demanded a lot more collateral for that stock (because its eventual value is so uncertain) and a lot of brokers couldn’t or didn’t want to meet it.
They also didn’t want to say anything that might give an impression of being insolvent (especially when it isn’t true).
The main problem was majority of the GME interest was on Robinhood platform. So other brokers were able to get away with deposits or shorter blocking.
The next squeeze will put pressure on the other brokers given the movement of accounts out of Robinhood. I feel this works out in favor of Robinhood and as they don’t need to deal with gambling style traders.
...assuming they had the money. On the day they suspended trading, they also raised $2B in funding the same night. A few days later they partially unrestricted trading.
Well then what is the reason? I've not seen anything else. The CEO was cagey when asked about liquidity, but every official release has suggested that the collateral requirements were the problem.
There was a several hour period one evening where some “it’s for your own good because of the volatility” message was the first comms from the company on the topic.
That's not what the message said. It said "to protect our customers." Which is consistent with the capital requirements reason. If RH didn't meet the requirements, the entire company (all of their customers; even those who knew nothing about game) would go into receivership and the company unwound. Meanwhile, no one can sell their shares while this happens. Not meeting their capital requirements would have been very, very bad for all of RH's customers.
For the record, why did Robinhood stop the trading? I know there's been an uproar, but due to the volume of articles it's been difficult to get a clearheaded idea of why Robinhood actually did it.
> "Brokers must post margin with the Depository Trust & Clearing Corporation and National Securities Clearing Corporation at the end of each day to ensure enough funds are reserved to cover any trading losses."
> The “meme” stonks’ volatility skyrocketed, which meant that the clearing organisations could ask for more collateral from brokers on the grounds of needing to protect themselves from additional potential risk when settling the brokers’ trades. It takes two business days to settle stocks in the so-called digital age…
> Robinhood in particular was told to come up with $4 billion, or they would not be able to facilitate any trading the following day. RH, apparently not having that much cash on-hand, said, “how about we stop trading or severely curtail trading in the stocks that are causing PAIN to various masters of the universe?” The clearing houses said, “OK, in that case, you would only need to post $700 million.” RH agreed to that figure, rushed to raise more money from the Street and/or Silicon Valley, and then subsequently shut off trading on Jan 28th and into the weekend. (This is information gleaned from an interview the CEO of RH gave to Elon Musk on Clubhouse).
So, it's the clearing houses that strongarmed shutting down the trading.
Even if he knowingly, brazenly lied, and lied worse than this, that’s a weak basis for a lawsuit by itself. You’ll need to prove some damages from the lie.
Liquidity issue. Or rather, extremely close to it.
The CEO said he "doesn't want to use the L word" to describe it.
Basically they had to cover/deposit the purchase trades themselves, before they ran out of money to do so (liquidity issue) they shut down purchasing - then went on record on CNBC etc claiming that it's not a liquidity issue.
