FYI for those interested: you can get exposure to Robinhood's post-IPO market cap outcome right now via FTX.com pre-IPO futures.
This is something I'm pleasantly surprised by in 2021: Deposit crypto. Transact pre-ipo futures, stock futures, commodities like lumber etc. 24/7 with solid-liquidity.
> you can get exposure to Robinhood's post-IPO market cap
Ish. Creating derivatives around private assets is hard. Anyone who bought FTX swaps in e.g. Coinbase pre-IPO lost money on bad pricing alone. It’s for these reasons that their product is not compliant with decades-old U.S. securities law. Unfortunately, it’s free to roam in younger jurisdictions.
Disclaimer: I work in the private markets. I used to make markets in derivatives. I haven’t seen a single solution, to date, that competently combines the two.
> Is this when they're buying, or when they're selling?
FTX isn't a trading venue for shares. They create tokens representing the shares [1].
When they sell a token representing Coinbase stock at 3x what the stock is trading on private stock venues, and a bit more compared with where it IPO'd, that gain isn't necessarily going to other FTX customers. It's going to their captive broker-dealer, a German-regulated (i.e. virtually unregulated) entity.
Given Coinbase shareholders weren't allowed to transfer shares on unapproved platforms, there were zero authorized Coinbase sellers on FTX. The winnings went to the house.
You could do an OTC swap with Goldman Sachs, or just wait a week for the market makers to open up the option chains.
Once the chain is open, you can sell as many puts as your heart desires (or as many as your broker will let you) FYI, shorting puts is long delta, so you’d want the price to go up if you sold puts. Long puts and short calls are negative delta (short)
These valuations are crazy - meaning one of two things are going to happen in the mid-term. Either we see inflation outside of asset prices (wage rises, increased consumer spending) and the revenue of these companies rise to justify the valuations, or we don't see that inflation and these stock prices slide since they can't justify their values. Now I'm not an economist - so maybe someone can help me out here. If the market slides because of lack of already priced in inflation, is that deflationary? And therefore could it bethat the asset price inflation we've seen recently could be reversed simply by a lack of retail inflation causing stock prices to drop therefore destroying asset price inflation?
Didi is the Chinese Uber, and Uber's market cap as I write this is $90B, so on the face of it $70B for a fast-growing market on track to be several times larger than the US doesn't seem crazy.
Of course, that's assuming Uber's valuation is sane, which is not a bet I'd personally be willing to take.
1) A market correction is deflationary pretty much by definition 2) Inflation is a lagging indicator. The obvious expectation months ago would have been economic activity increasing after COVID 3) Valuation is often disconnected from revenue or anything else you'd consider rational, and it has nothing to do with inflation. An equity is its own thing, not a perfect indicator of economic reality
only know a little about economics but it seems very unlikely inflationary would drive up stocks more than it's driving up prices across the board. even if it were, the (subjective) large over-valuation of stocks wouldn't really be explain by an increase in money supply.
When the stock market collapses, it probably won't move inflation directly rather the collapse in demand across the economy will. second order effects as credit is no longer available due to banks panicking and govts intervening...
To people who existed in 2020. Let's take the example someone else mentioned of Uber. Uber is worth close to 50% more than it was worth at the beginning of 2020. This is what I mean by talking about the macro effects, as we get back to relative normal, what happens to these valuations? Is it a real reflection of inflation? Maybe, seems unlikely.
Just a reminder that robinhood prevented people buying certain stocks while allowing them to sell, causing many people to lose money, but supporting the short selling hedge funds, whilst claiming to be “investment for the people”.
Possibly they are rushing to IPO before facing court.
I would neither buy shares IN Robinhood nor would I buy shares using a Robinhood account.
Just a reminder that Robinhood didn't prevent this. Automatic increases to clearing house collateral requirements prevented this. If Robinhood allowed those trades to go through, they'd have been cut off from the clearing houses, and none of their customers would have been able to perform any trades.
Unfortunately, due to the low level of public understanding of how stock trades actually settle, the conspiracy narrative you're presenting was the one that made it into the public consciousness.
There's no such thing as an instant stock trade. Retail brokerages are a leaky abstraction over what is actually an incredibly messy settlement layer. This abstraction holds when everything is normal, and leaks when stock prices become too volatile.
Robinhood implemented restrictions before any other platform though they were not the only ones to do so, held restrictions longer than any of their competitors, used restrictions (sell only) in a way that was unique to Robinhood and falsely made public claims (later to be retracted) that they had chosen to do some or all of this "for the public good."
That's because Robinhood had the bulk of the retail mania, and were thus the most affected brokerage.
Other retail brokerages, that were less popular with the WSB crowd never even stopped purchases of GME, because GME is was a small fraction of their trade volume - and thus, their collateral obligations did not grow much.
You are correct for not wanting to use them to trade, for two reasons.
1. If you are actively trading, you are almost certainly throwing away money. Don't actively trade. Just buy an index fund and forget about it.
2. If you are actively trading, and you are a serious, informed individual (which already excludes the overwhelming majority of people who were buying GME), and you want 24/7 uptime, you shouldn't use a discount zero-fee brokerage that's popular on WSB. They won't be able to guarantee that uptime when WSB decides to take one side of a huge trade.
Because stocks valuations don't jump by 2000%, with volumes up 3000% 'all the time'.
And when they do, they aren't solely driven by retail investor mania pig-piling the exact same brokerage.
And, uh, particular brokerages have stopped uni-directional trades for volatile stocks in the past, for the exact same reason. You may notice that no retail brokerage makes any guarantees to its customers that they will be able to trade anything, anytime they want. They don't carry a collateral that can meet any such guarantee.
I’m not a fan of Robinhood, but everything that vkou has been saying is true.
My understanding is that Robinhood is self-clearing, not that Citadel is its prime brokerage.
The clearing margin requirement came from NSCC. Clearing margins CANNOT be satisfied using client funds. So it’s Robinhood’s own capital—and whatever credit lines they’ve negotiated—that would need to meet those requirements.
If I deposit 100k into Robinhood and keep it there as cash for 2 years, then one day I plunk all of it into GME, then until all my trades settle two days later, Robinhood will have increased clearing margin requirements based on the VaR of my unsettled trades. (Unless, my trade offsets someone else’s from within Robinhood, in which case I believe RH’s margin would reduce—but I’m not sure about this part.)
And if one day after my trades, GME’s stock goes up 10x, the VaR goes up roughly 10x as well. Even though I would have a claim to a lot higher value in my account once everything is settled, until the trades are settled, it’s a major cash crunch for RH.
The fact of the matter is that RH was not under-capitalized or have disproportionately small credit lines as a portion of their AUM, as compared to other brokerages. It’s just that their users were the ones that acted in a most coordinated way on a stock whose VaR was going through the roof.
No, Robinhood’s collateral requirements were increased by their clearing house only because their clearing house were on the hook to lose billions to retail investors during January’s short squeezes.
The same clearing house used by Robinhood were the same people illegally naked-shorting GME.
This is collusion, plain and simple. No part of this is representative of the “free” market.
Nonsense. Clearing houses don't lose anything during a short squeeze, as long as funds committed to a trade actually clear. They aren't the ones on the hook for a short exploding.
They raise their collateral requirements during a period of high volatility. As it turns out, when you run a zero-fee brokerage, you don't just have a couple of extra billions of dollars lying around that you can put up as collateral on a moment's notice.
> illegally naked-shorting GME.
You don't understand how shorts work.
You don't need anyone doing a naked short for a stock to exceed 100% short. This has been explained hundreds of times, both here, and on Reddit.
> The only people allowed to naked short are market makers
The SEC made naked short selling illegal after the 2008 financial crisis. Market makers are not allowed to naked short.
> Clearing houses don't lose anything during a short squeeze, as long as funds committed to a trade actually clear
Exactly my point — as long as funds clear, which they were at risk of not doing, thus putting clearing houses like the DTCC on the hook, in the event of a margin call.
Let me break it down:
- Melvin Capital were aggressively shorting GME
- Retail investors used Robinhood to take advantage of a short squeeze opportunity
- During the short squeeze, Citadel (who partly own Melvin Capital) bailed-out Melvin with a $2.8bn investment
- Citadel is Robinhood's prime brokerage, paying them for preferential order flow
- Citadel's global Head of Operations is on the board of the DTCC, the clearing house responsible for increasing collateral requirements
- As a market maker, Citadel care a huge amount about GME exploding, because if Melvin Capital were margin-called, Citadel end up holding the bag
- If Citadel are margin-called themselves, the DTCC clearing house end up holding the bag.
This is really just the tip of the iceberg. I'm consistently surprised at how defensive comments on HN seem to be towards hedge funds and the whole short-squeeze debacle — which is still very much ongoing. I can happily point anyone with an open mind in the direction of excellent research summarising the ongoing situation, and there's mounds of evidence indicating hedge funds never actually covered in January.
Not to mention the math on vote tallies in GME's latest 8-K filing from 2 days ago clearly proves more GME shares exist than should be mathematically possible, enabled only by naked short sellers who never covered.
Oh, and whilst I'm at it, their 8-K also disclosed that they've been working with the SEC since May to assist them with an active investigation in to market manipulation. Doesn't get much more obvious than that, does it?
But if it's easier to turn a blind eye, then each to their own.
> Not to mention the math on vote tallies in GME's latest 8-K filing from 2 days ago clearly proves more GME shares exist than should be mathematically possible, enabled only by naked short sellers who never covered.
You mean the 8-K that showed 55M votes out of 70M shares outstanding? How does that prove anything? Maybe you're confusing shares outstanding with the float.
For context, last year's 8-K showed 66% of shares voted. The 8-K also reported a total of 42,886,817 shares voted last year. This year's 8-K, issued 2 days ago, showed 55M votes out of 70M possible. Therefore, 78.5% of shares were voted.
However, unusually, this year's 8-K did NOT report the total number of votes actually received.
Unsurprisingly this is likely because 8-K filings cannot legally show over 100% of shares voted. GME's votes were counted by Computershare [1]. When more votes are received than shares outstanding, the vote tabulator (Computershare) will "scale" the votes proportionally to never exceed 100%. Computershare have publicly documented procedures in place for how they scale votes in the event of overvoting [2].
An off-by-1 rounding error in the 8-K on votes for Lawrence Cheng, compared to all the other board members, is highly suggestive votes have been scaled.
Retail brokers like eToro reported only 63% of eligible votes were cast [3]. Countless international brokers either refused or were unable to allow their shareholders to cast votes.
Since the initial squeeze, the buy-sell ratio as reported by Fidelity [4] vastly favours buying over selling. It's slightly lower than it has been at the moment (currently 76% buys), but back at April 14th when the vote deadline was, it was higher than it is today. This shows retail are not selling, only buying more.
Additionally, the broker non-vote figures in this year’s 8-K are significantly less than in previous years. This is another indicator of vote scaling, given the huge push from retail investors to vote their shares.
These filings are only 2 days old, and truthfully, only time will tell what will come of this. I’ve been watching the price action of GME follow very predictable patterns around option expiry and settlement dates over the past few months, clear patterns are emerging. For more on this you can search “GME FTD cycles”.
My comments here really just cover the tip of the iceberg, and I hope they provided some food for thought for others. I didn’t even start on the blatant media coverups, or the obvious patterns of brand new Reddit accounts almost exclusively being used to encourage sell-offs. Nor coordinated pump-and-dumps on WSB for stocks Citadel own long positions in. Or crypto markets tanking within minutes before liquidity tests begin. Or CNBC abruptly cutting off guests who mention naked shorting. Or brokers who are unable to locate shares. Or Michael Burry, the famed investor who made billions from shorting the housing market in 2008, having taken a long position on GME. Or GameStop only actually publicly acknowledging the potential of a squeeze on their social media, the exact same day their chairman would have received the initial (non-scaled) vote counts.
I could keep going on in more detail but I’ll let others do their own research. I feel I’ve read enough to be confident in my assessment that shorts have not covered, but if I’m wrong, I don’t have more skin in the game than I can afford to lose. We’ll see!
The reason they’re allowed to is precisely for a GME type situation, if there is a massive buy-side imbalance and there aren’t enough shares to borrow to short (aka sell to buyers), market makers are allowed to naked short to remain delta neutral.
Citadel (probably[0]) isn’t going to naked short GME to take a directional position, they just want to capture the bid/ask and hedge the directional risk, which sometimes requires naked shorting. I suppose they could (and might) use synthetic shorts (long atm put, short atm call) to hedge. I’m not sure if only a designated market maker is allowed to naked short, or if supplemental liquidity providers or other types of MMs I don’t know about are also allowed to naked short.
[0] I say this only because I’m not Ken Griffin and don’t know with absolute certainty, but generally a market maker aims to stay delta neutral.
On the day in question, Robinhood posted to say this is what it was doing, and it explicitly stated that it was doing so to protect its customers from volatility. It absolutely said nothing at all about doing it because of regulatory or other requirements.
Robinhood has since deleted that post from its site.
And no matter how you cut the cake, if you put your money into Robinhood then you risk losing it when Robinhood changes the rules.
It seems that the commenters in this thread have at least two views on what you call “changing the rules.” The fact of the matter is, no one guarantees you 100% uptime access to the markets. I think this episode should be a lesson for everyone, RH sympathizers and haters alike, that it probably makes a lot of sense to have well-funded accounts at at least 2 brokerages, if you plan to be an active trader.
If Robinhood hadn’t disabled GME buys, one possibility was RH customers not being able to trade any stocks. Which one do you think is the better choice, limiting a single stock, or potentially losing the ability for all customers of RH to trade all stocks?
Do you have evidence that Citadel is RH’s prime brokerage? Being an executing broker or a trading counterparty or paying for order flow has nothing to do with being a prime brokerage or clearing RH’s trades.
I just re-read my comment and saying Citadel was Robinhood’s prime brokerage was definitely an error (too late to edit the comment now). I should’ve said market-maker.
Nonetheless, all the conflicts-of-interest between Citadel, Robinhood, and Melvin still stand. Citadel own Melvin, Citadel are market-makers for Robinhood, Citadel are members of the DTCC, Robinhood users cost Melvin billions, Citadel are footing the bill.
Worth noting that Robinhood is a member of the DTCC directly. As is Computershare.
You don’t need the connection to Citadel. If any member of DTCC blows up DTCC holds the bag. But all that means is all members of DTCC hold the bag, including the members holding the non-settled long positions because all public equities in the US trade through DTCC or one of its members.
Front-running is already illegal and nobody cares about doing it for a bunch of small retail traders. Also buying stock requires funds to clear for 2 days while selling doesn't, that's why buying was restricted but selling wasn't.
Whether Robinhood should have had more capital or how those margin requirements were handled is a serious question but that's entirely separate than these accusations which seem to be made by people who have no idea how the system actually works.
Just to be clear: Robinhood claims that they prevented buying certain stocks because of increase collateral requirements by DTCC due to high volatility. Do you have any evidence that's untrue. Let's establish that before we move on to the claim that Citadel front-runs retail flow.
From my understanding, the reason the DTCC raised collaterals so heavily was mostly due to the risk on the short side. So they were protecting the hedge funds by protecting themselves, and it carried on to Robinhood. So Robinhood didn't really have a choice, but they still were protecting the shorts in the end.
And that's what happens when you play financial games you don't understand.
If your strategy for driving a short squeeze, or a pump-and-dump does not take into account counterparty risk, you are going to get taken to the cleaners. When you making money causes the brokerage you are using to be unable to execute that trade, this is 100% your fault.
As the saying goes, don't invest in financial instruments you don't understand. Entering a long position in a volatile, high-volume stock through a discount brokerage was a financial instrument that most of /wsb did not understand, and it blew up in its face.
What is not speculation is that they restricted the buying of stocks while not restricting the selling. The rest, though it may be speculation, has enough circumstantial evidence to allow most regular folks to make up their mind.
The people who will invest in the IPO aren't going to be the people who lost money due to RH locking the purchasing of stocks and stopping the price from sky rocketing.
But in terms of a customer base, in terms of a company, RH are dust.
>What is not speculation is that they restricted the buying of stocks while not restricting the selling.
Yes but RH didn't have the billions of $$$ deposited at the clearing house for their trades to be honored. Buying stock to settle a few days later requires collateral that RH didn't have.
RH does some questionable things but their "restriction of the buying" is an inevitable consequence of not having the billions to meet any margin calls. They were the tail not the dog.
> What is not speculation is that they restricted the buying of stocks while not restricting the selling. The rest, though it may be speculation, has enough circumstantial evidence to allow most regular folks to make up their mind.
Right, because sell orders would lower the clearinghouse margin requirements. If there are $100M GME buys on RH with 2 days to clear and $100M GME sells with 2 days to clear, their clearinghouse margin requirement is $0.
Robinhood has added millions of new accounts and the price of GME recently reached the same heights this past week for anyone that was still holding losses. A bunch of people gambling money isn't going to affect the company.
Robinhood actively colluded with their hedge fund owners, by blocking buy orders — but not sell orders — under the guise of “increased margin requirements”.
In fact, those margin requirements were being set by Robinhood’s prime broker and investor, Citadel Securities — who were set to lose billions if retail were allowed to keep buying.
Regardless of whether NSCC acted independently or under secret pressure from Citadel, what could Robinhood have done differently? If they didn't have the billions in the bank to control their destiny, what other options do they have? If the clearing house cuts off Robinhood's trade settlement, what are the realistic alternatives?
>Regardless of whether NSCC acted independently or under secret pressure from Citadel, what could Robinhood have done differently? If they didn't have the billions in the bank to control their destiny, what other options do they have? If the clearing house cuts off Robinhood's trade settlement, what are the realistic alternatives?
This definitely calls for that one four-panel image macro with drake saying no thanks in panel one to something in panel two, and approving in panel three to what’s in panel four.
You know the one right?
So then panel two: Buying meme-stocks
And panel four: Buying stonks in the platform that everyone is using to buy meme-stocks.
It’s too bad that I don’t actually have any money to buy Robinhood IPO though :^) :’)
You must have missed the 420 memos where clearly bizarre fuckery around "meme stocks" was supported by Robinhood suspending trading of them, resulting in a mass migration from RH to Fidelity and others.
You probably shouldn't talk condescendingly about things you clearly are so behind on.
Fair enough - though I'd suggest you differentiate between meme stocks (those hyped on social media) and meme stocks that were targeted for destruction by SHFs and are now facing a multi-billion short squeeze. There's a lot of range between those two definitions.
This is something I'm pleasantly surprised by in 2021: Deposit crypto. Transact pre-ipo futures, stock futures, commodities like lumber etc. 24/7 with solid-liquidity.