Why Robinhood disabled buys but not sells

https://stu2b50.dev/posts/why-robinhood-d3580b

by stu2b50 • 5 years ago

705 671 5 years ago

hntrader5• 5 years ago

RH say they scrambled to organise necessary credit lines in response to new DTCC requirements. Well why weren't they in place by Monday, Tuesday or Wednesday in the expectation that DTCC would increase these requirements? Volumes were already exploding with many days of advanced warning and IVs already approaching the hundreds of percent. There's a plausible alternative that RH is not being entirely truthful, and purposely didn't organise the required lines in order to satisfy their biggest customer, so they had a legal way to restrict trading. I don't have evidence that this is true, but nor would I expect to have this evidence at this early point in time.

I believe RH's explanation is probably the truthful one (Hanlon's Razor), but some scepticism is warranted.

ben_w2• 5 years ago

I know literally nothing about the legal landscape here. Are they allowed to be dishonest or even misleading in PR statements on topics like this? (I’m thinking of how much trouble Musk got in for “420”).

TheAnswerMan• 5 years ago

What if I told you people break the law and are dishonest?

contravariant• 5 years ago

I'm not aware of any specific restrictions on PR statements so I guess they're allowed to be as (dis)honest as any company is allowed to be.

alisonkisk4• 5 years ago

Yes, they are, as you can most easily see because Musk getting "punished" didn't stop him from continuing to break securities law on Twitter.

The punishments are smaller than the benefits.

I'm not saying Robinhood was breaking the law or lying here though.

At any rate, hostile questions on cable TV are not official sworn statements under Sarvanes-Oxley or court hearings. It's unfair and inappropriate to hold someone to a standard of perfection in live hostile questioning on TV.

josefx• 5 years ago

(I’m thinking of how much trouble Musk got in for “420”).

Yes, trouble, the kind he could just walk of. Some people also call that the cost of doing business.

mehlmao• 5 years ago

Tesla is publicly traded, which is why the SEC took action. Robinhood was looking to go public, but hasn't done so yet.

jrd259• 5 years ago

So you accuse the author of bad faith or at best laziness or gullibility. You are now obligated to provide superior explanation of the trading regulations, not just call names.

hntrader5• 5 years ago

I tuned down the rhetoric a bit as that's not how I wished it to come off. I think the article is very good actually, I just wanted to introduce some scepticism regarding the PR explanation we're getting at the moment (and there might be something I'm overlooking that debunks what I've said, very possible).

tptacek16• 5 years ago

The article you just read points out all the other brokerages that had to do the same thing Robinhood did.

xiphias24• 5 years ago

WeBull CEO said that their situation was very different, as Robinhood is self clearing and they are not. They were told to stop trading. So the situation is not as simple.

franklampard5• 5 years ago

And they are no longer restricting

karagenit• 5 years ago

I guess it's possible there is some sort of conspiracy going on, but I always like to remember "never attribute to malice that which can be adequately explained by stupidity."

Leparamour2• 5 years ago

Why not both?

mdoms2• 5 years ago

I don't apply Hanlon's Razor when there are billions of insider dollars at stake.

jrmg• 5 years ago

but some scepticism is definitely warranted

What’s the alternate explanation in which RH is being nefarious? Why would they want to stop buys?

hntrader5• 5 years ago

The conspiracy theory is that they restricted trading in order to crash the GME price, thereby benefiting Citadel. There seems to be a "legal" way they could've done this, which is failing to be sufficiently capitalized for when the DTCC reqs change.

Hanlon's Razor and all, I fully agree, so I think this isn't the most likely explanation, but I don't think the prior for it is that low either.

totalZero16• 5 years ago

A bunch of rich people from whom Robinhood takes payment for order flow stood to lose money if shorts continued to squeeze quickly, and selling pressure from spooked longs provides an offer to shorts who need to cover.

user39393823• 5 years ago

This is my leading theory. It's called "plausible deniability". When billions of dollars are at stake I don't believe in coincidence, especially not when they moved in the direction of megapowerful people that includes a guy convicted for insider trading.

therealdrag0• 5 years ago

Aren’t there mega powerful people on both sides?

platz• 5 years ago

While others only halted options
- Interactive

False, IB halted buys of GME stock even with 100% available cash funds

leaferino• 5 years ago

http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...

While I'm wary of Robinhood and their reasoning I can believe it as they're a new company, but I can also believe that the DTCC is involved in all this.

kilroy123• 5 years ago

Terrifying if true.

realmod• 5 years ago

Naked shorts are already illegal, so if that happened Im pretty sure that they will all face severe repercussions. But the 140% short interest is very misleading and points to naked shorts even though the excessive short interest can explained without them.

xiphias24• 5 years ago

,,Robinhood legally could not submit trades on $GME until they could muster the deposits for GME that they needed. ''

This sounds like a liquidity issue, but Robinhood's CEO said in the interview that there was no liquidity issue.

The why doesn't matter at this point because Robinhood CEO was caught lying by contradicting himself.

PragmaticPulp9• 5 years ago

It's clear that Robinhood's comms approach was to avoid a bank run. They raised a billion dollars of emergency investment later that day and also drew down their credit lines. He may have been trying to say that they had plenty of money coming, but it wasn't available at the right time.

Their comms approach is the type of PR disaster that will be studied for years to come.

xiphias24• 5 years ago

It's funny that people were angry for Robinhood not allowing buying new options while Robinhood was afraid of just the opposite: everybody cashing out.

skybrian8• 5 years ago

It's not exactly like a bank run in that there doesn't seem to be any question of solvency once trading is stopped. Customers could always get their money out.

It's more like a denial-of-service attack. Customer orders take server-side resources to execute. Except that the server resources taken up are literally money, and execution takes days. Blocking orders fixes the problem.

They didn't allocate enough server resources (money) to execute all requests under extreme load.

Customer money is a separate pool, not used for execution.

jmcqk6• 5 years ago

They raised a billion dollars of emergency investment later that day

Kind of unrelated, but I think if "wall street" was really upset regarding what RH is doing, this wouldn't have been possible.

paulgb5• 5 years ago

How would you define a "liquidity issue"? I would define it as "current liabilities in excess of current assets", using the accounting definitions of each. It's not clear that Robinhood was ever in that situation.

Not to defend the RH CEO, who I thought was very poor about communicating this, but I don't think that particular sentence was a lie.

xiphias24• 5 years ago

They were in it, as they wouldn't have been able to deliver the value of the options at that point (that's why they needed the cash injection).

The whole stock market industry is based on fractional reserves.

cm2187• 5 years ago

I would define it as "current liabilities in excess of current assets"

That's solvency, not liquidity. If your liabilities exceed your assets you have gone bust.

Liquidity is having the cash to cover your outflows. You may have enough assets but if these assets aren't liquid, you have a liquidity issue.

ncallaway• 5 years ago

I would define it as "current liabilities in excess of current assets"

I don't think this is a good definition.

If I have a $150 electric bill due immediately, no cash, and $200,000 of real estate I have a liquidity issue.

This despite the fact that my current assets far exceed my current liabilities.

mdoms2• 5 years ago

They literally did not have enough money in the bank to continue business as usual. If that's not a liquidity issue I don't know what is.

hehehaha2• 5 years ago

They had to access money for 3-4 days due to (1) surge in turnover in regards to GME including weekly option rollovers which by Wednesday had ballooned, and (2) influx of new accounts opened with instant access to buy meme stocks.

It was a liquidity issue but if he had come on TV and stated that, there would have been market collapse and utter chaos. I can’t understate how close we got to having a big liquidation event on the entire market, which we still may depending on how this week goes.

ballark• 5 years ago

Does this make it okay to lie to the people utilizing your services?

PragmaticPulp9• 5 years ago

Everyone assuming a conspiracy theory needs to read this.

Keep in mind that Robinhood also gives everyone a margin account by default. They also let people invest on margin before their inbound bank transfers arrive (Robinhood Instant). The influx of new traders sending money to Robinhood or selling other stocks to buy GME quickly drained their credit lines, reducing the capital they had available for collateral.

Keep in mind that when someone sells a different stock to buy GME in the same day, they're buying GME on margin. Stock trades don't settle until T+2, so any new purchases using those proceeds are done on margin.

This was a capital crunch at Robinhood due to an unexpected herd of new traders all looking to do the same thing in unison. It violated the assumptions of their business model, and the only way to keep the platform from grinding to insolvency (or violating regulations) was to slow down the unexpected event by slowing meme stock purchases.

Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines?

The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money. They didn't want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.

ogre_codes3• 5 years ago

Keep in mind that Robinhood also gives everyone a margin account by default.

While this is technically true, it is not a typical margin account. People cannot invest more money than they put into their Robinhood account. In order to do that, they need to switch to RH Gold.

RH Basic: I put $100 into the account, I can buy $100 worth of stock before my funds clear. (Robinhood Instant)

RH Gold: I put $100 into the account, I can buy $200 worth of stock. (Actual effective margin)

While both of these are technically margin accounts, most people associate the term "margin investing" with the latter model which requires $2000 in the account and a deliberate choice to upgrade.

kbar132• 5 years ago

sure thanks for the explanation. at the end of the day the user is trading with borrowed money, which is the problem.

PragmaticPulp9• 5 years ago

There’s a very specific legal definition of what a margin account is.

Robinhood accounts are Regulation T (aka Reg T) margin accounts by default. They have limits, yes, but they are very much margin accounts. That’s how they make their UX work.

The point is that typical user activity will be performed on margin, transparently. The flurry of synchronized activity caused a larger than normal draw on their margin, which further strained their working capital.

ratsmack• 5 years ago

This may be a perfectly good explanation, but if this is the case, why doesn't the Robinhood people release a statement explaining this instead of the puff piece the CEO did for PR.

SpicyLemonZest3• 5 years ago

WSB users are known to exploit Robinhood problems for fun. There was one case a few years back where they found a way to evade margin requirements and get arbitrarily high leverage, for example. If I were Vlad Tenev, I'd be seriously concerned that a detailed description of which kinds of trades cause problems for Robinhood would be used to collect WSB accolades by knocking the company over.

azinman22• 5 years ago

They did: https://blog.robinhood.com/news/2021/1/29/what-happened-this...

EGreg• 5 years ago

More to the point... why didn’t Robin Hood simply make the buys in those tickers REAL buys instead of margin buys and explain the situation?

MrMan12• 5 years ago

Because they are better at growth hacking than providing a service

np_tedious• 5 years ago

https://twitter.com/Camp4/status/1355701648182501378?s=19 presents an argument about how they should have and how it might've been done well

ds206• 5 years ago

I want to believe you but then I see how the short sellers think about these kinds of situations: https://www.youtube.com/watch?v=VMuEis3byY4

TuringNYC4• 5 years ago

What about funded accounts with no clearance in progress?

This explanation only makes sense if RH allowed the above situations to buy, yet it seems they restricted globally.

wbl• 5 years ago

You're expecting a basic level of competence and maturity that RH doesn't have as evidenced by past problems.

skybrian8• 5 years ago

The stock trade still takes two days to settle. Apparently this is to allow for correcting errors before it becomes irreversible.

gruez12• 5 years ago

What about funded accounts with no clearance in progress?

Other comments have already mentioned that they can't use customer funds for the deposit, so they need to pay it out-of-pocket or borrow it.

dheera• 5 years ago

Stock trades don't settle until T+2

This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba. They can do it in a matter of seconds. But the people up at the top of the stock market choose to not implement it. Why?

on margin

What about high frequency trading instiutions on Wall Street? Who gives them their margins, and why is it that they are subject to much less interference than RobinHood users?

stu2b5014• 5 years ago

Modern databases don't need T+2 to achieve consistency. Ask PayPal or Visa or Alibaba

But that's actually not true though, it takes days to settle those transactions, the payment processors just provide the illusion of instaneousness by smoothing it over with their own fungible cash reserves.

tonfa7• 5 years ago

Why?

Because it allows for more internal netting, and more time to reconcile discrepancies with the tape.

If you're familiar with computers, it's the same kind of tradeoffs as doing lots of rpcs vs. batching.

mlyle4• 5 years ago

This too smells fishy and rigged to me. Modern databases don't need T+2 to achieve consistency.

The problem is, you have lots and lots of databases-- there's not one central ledger of every position. Settlement is effectively an atomic commitment protocol, so that if you are selling a stock you expect to receive from one firm to another, and someone else fails to deliver, you need to be able to unwind the downstream trades-- but also need all transactions to eventually become final.

The T+1, T+2, T+3 periods are convenient in human units, because sometimes it's desirable to have a human in the loop when unexpected things happen.

azinman22• 5 years ago

https://thismatter.com/money/stocks/settlement-and-clearing....

It’s shortened over time, but things across many parties still need to be sorted out, including buffets for fraud. Visa also doesn’t work the way you think it does, much like checks, ACH transfers, and wires also take days to clear.

SkyMarshal3• 5 years ago

T+2 is not a database limitation, it’s a deliberate decision by clearing houses to provide a window for cancelling a trade in case there are problems - fraud, etc.

skybrian8• 5 years ago

Stock trades can be corrected. I'm not sure when they will do it, but apparently you get 30 minutes to ask for a correction and they need longer to review it manually.

See: https://www.investopedia.com/terms/e/erroneous-trade.asp

QuesnayJr• 5 years ago

Whether or not it is fishy, it is the literally, honest-to-God truth. Not only that, it is well-known within the industry. People have floated replacing the system with something that settles faster, but they haven't.

There's a Wikipedia page on it (last edit December 2019): https://en.wikipedia.org/wiki/T%2B2

MrMan12• 5 years ago

Brokers! Provide short term funding. T+2 is a fact of life in North American equities trading.

tbrock• 5 years ago

Giving people who don’t understand margin a margin account is the easiest way to have them blow themselves up financially. Most people think that this leverage is free, it’s not, and it multiplies your risk. If you are wrong you’ll be twice as wrong. If Robinhood should be criticized for anything it should be this.

There’s a reason people have to usually apply for a margin account separately. Automatically handing them out is a recipe for disaster.

I’m all for empowering folks to do what they want with their money but it should be pared with some sort of education.

ubercow132• 5 years ago

Could you explain how it multiplies your risk in the case of RH?

barbecue_sauce• 5 years ago

You have to pay for "margin" in the sense that most traders think of it (for leveraged purchases). The automatic margin that RobinHood gives you is only equal to your purchasing power according to your recorded deposits and trades to speed trading velocity and gloss over the underlying slowness of the US banking system.

throwaway333444• 5 years ago

The problem with this theory is that it wasn’t just Robinhood. There were literally like a dozen or so firms that halted buying. Some of which were well known long established firms (Merrill, etrade).

These firms should have had no problem continuing allowing purchasing.

JumpCrisscross2• 5 years ago

There were literally like a dozen or so firms that halted buying

My understanding is these firms halted buying on margin. Did anyone else halt for non-margin accounts?

nverno• 5 years ago

The article discusses this- excess buys and market volatility lead to increased capital requirements by clearing houses, so it wasn't necessarily specific to robinhood.

soared3• 5 years ago

These firms should have had no problem continuing allowing purchasing.

Their costs increased 50x overnight - so they definitely should have had problems. DTC required a few percent collateral, and then overnight required 100% collateral on $GME. No business (well, fidelity and a few others weathered it) is able to increase short term liquidity 50x overnight.

Triv8883• 5 years ago

I wanted to disable my margin account on RH but I didn't find how... luckily I no longer do business with them.

nrmitchi2• 5 years ago

For what it's worth, there seems to be a link in their docs to downgrade to a "Cash" account.

But with that you lose pretty much all the functionality (instant transfers, instant settlements, etc) that makes Robinhood any better than any other non-margin alternative. Unless you're a huge fan of confetti. I hear Cash accounts still get the confetti.

jdhn• 5 years ago

1) All accounts were banned from buying these shares, even ones whose accounts had cleared funds.

2) If margin requirements were the problem, why not inform the user that due to the unusual circumstances, the increased margin cost would be passed onto the buyer?

rozab• 5 years ago

And most importantly, why was only buying of meme stocks disabled? This argument doesnt hold up to any scrutiny

stu2b5014• 5 years ago

Margin is a red herring. Robinhood cannot use client money to meet its clearing fund deposit requirements. Whether the buys and sells came from margin or not doesn't matter.

SilasX6• 5 years ago

Keep in mind that when someone sells a different stock to buy GME in the same day, they're buying GME on margin. Stock trades don't settle until T+2, so any new purchases using those proceeds are done on margin.

TBH, that, for me, is the real scandal here. We have such an antiquated system that we can't actually be confident who owns the stock at any point until you do some super-slow settlement process that takes two days[2]. And so, enshrined in law, we have this bolted-on system where you have to put up extra collateral just to be confident of something that shouldn't need said collateral.

There is no reason, with all the identities attached, and auditing procedures, and digital signing, and protocols we have today, that we shouldn't be able to know who owns the stock at any given point, and not have to rely on these super-slow resolutions.

In this case, they had to add that collateral, even when buying with money that pretty obviously was there (had been deposited years ago).

Plus, some articles are claiming[1] that even stock you do own, whose purchase long ago settled, is being lent out without your direct knowledge by the broker for a profit, which is like ... what?

[1] https://yudkowsky.medium.com/r-wallstreetbets-is-trying-some...

[2] Incidentally, people like to ridicule Bitcoin for taking an hour to settle since you have to wait an hour to get six confirmations. But that's actually fast compared to this (centralized!) system, since you have to compare to the time after which you can "take the stock/cash and run".

vinniejames2• 5 years ago

The reason for this is the fact that large businesses profit from being the middle-man here. Moving towards automated settlement on a blockchain reduces cost and increases efficiency,it's a win-win for everybody except the middle-man

modeless3• 5 years ago

Yes. DTCC and their T+2 settlement are the villains here. It's a ridiculous legacy system that needs to go.

soared3• 5 years ago

There is no reason, with all the identities attached, and auditing procedures, and digital signing, and protocols we have today, that we shouldn't be able to know who owns the stock at any given point, and not have to rely on these super-slow resolutions.

Trillions of dollars are moved in these markets - you can't just hop in and do a quick rebuild with crypto, launch it, and call it good. Imagine rebuilding ythe core infrastructure at Microsoft - that takes years and years. But now you also have the entirety of the global economy dependent on your software. You also need to meet heavy government regulation and comply with oversight.

There is a whole shit ton of reasons this process hasn't been updated to T+0. It was t+3, now t+2, and I've heard (from the CEO of Webull on bezinga power hour yesterday) wanting t+1 this year.

Edit - to be clear I'm not saying dropping the current system for a new one is the only option. I'm saying improving the system at all (or rebuilding it) is arguably one of the most challenging software tasks one could undertake and there are serious reasons financial markets are not anywhere near what is "technically possible".

ashtonkem2• 5 years ago

Fun fact; back when I worked in finance (2015-2017), forex trades including Bitcoin actually settled slower than anything else by about a day. Our pipelines had to detect crypto trades in order to fix the expected settlement date.

skybrian8• 5 years ago

Unlike Bitcoin, stock trading errors can be corrected. The review process isn't automatic.

Animats• 5 years ago

TBH, that, for me, is the real scandal here. We have such an antiquated system that we can't actually be confident who owns the stock at any point until you do some super-slow settlement process that takes two days.

It's worse in crypto. Try to get cash out of a crypto exchange by T+2.[1]

[1] https://news.bitcoin.com/coinbase-withdrawal-delays-leave-us...

scatters2• 5 years ago

Plus, some articles are claiming[1] that even stock you do own, whose purchase long ago settled, is being lent out without your direct knowledge by the broker for a profit, which is like ... what?

That's how your "free" trading account is paid for. If you don't like it, fine! Just be prepared to pay per trade and per month.

tinus_hn• 5 years ago

Wait until you find out that stock can be traded even though it doesn’t actually exist

newacct583• 5 years ago

But... 2-day latency for purchases of interest in companies sounds perfectly reasonable given the notional purpose of those transactions. Isn't the real scandal that we've built a huge trillion dollar industry around this idea of "trading" that has nothing to do with the asset being purchased?

Jommi2• 5 years ago

https://old.reddit.com/r/wallstreetbets/comments/l2n5wv/most...

KMag2• 5 years ago

Nobody is really a fan of the SEC breaking trades, but many view it as a necessary evil to promote stability of the system in the face of fallible humans and potentially buggy systems.

Shortening settlement reduces the time window where the SEC can reliably intervene. Take the example I gave earlier[0] of a pension fund manager fat-fingering an order with a hypothetical 1-minute settlement window. With one-minute settlement, by the time anyone realizes the pension fund has made a 10 million USD mistake, that money may be spread across a charity, a new baseball stadium, and thousands of stock trades indirectly via an ETF arbitrageur indirectly via an options market maker's delta hedging. It's a fictional tale, but it's not far fetched in a world of rapid settlement.

Hopefully some day we have much more reliable automated systems and humans further from the loop, but until then, slow settlement increases the window to take corrective action.

[0] https://news.ycombinator.com/item?id=25953459

toast03• 5 years ago

We have such an antiquated system that we can't actually be confident who owns the stock at any point until you do some super-slow settlement process that takes two days[2].

We know who owns almost all the shares. It's Cede & Co. They own almost all the shares of all the publicly traded companies. But if you sell shares that aren't owned by Cede & Co, it takes longer to process them, because corporate transfer agents are sloooooow; supposed to deliver in T+2, but more like T+7.

My understanding is a brokerage is only allowed to lend your shares if you have a margin account; and possibly only if you have an open margin position. Of course, Robinhood pushes a margin account on everyone, and that turns purchases with unsettled cash into a margin position; apparently RH doesn't allow that in cash accounts, even though most established brokers do.

At this point, I'm not sure why anybody would choose RH as a brokerage. They seem less reliable, their UX is bamboozling, most established brokerages charge the same $0 comissions and give more of the payment for order flow to clients, established brokerages (tend to) have much more excess capital on hand to meet increased collateral requirements, established brokerages can enable settings to limit risky (to the brokerage) trades in volitale stocks without blocking all trades, and RH is decidedly non-transparent.

gnu8• 5 years ago

Plus, some articles are claiming[1] that even stock you do own, whose purchase long ago settled, is being lent out without your direct knowledge by the broker for a profit, which is like ... what?

That is how short selling works and it is not a controversial process. It is normally transparent or invisible to the owner of the shares, eg you still get your dividends and can sell the shares at will. My understanding is that if the short seller goes bankrupt and cannot repurchase the shares, the brokerage provides the shares to the owner and takes the loss themselves.

amluto2• 5 years ago

I’m not very familiar with stock settlement, but I’m quite familiar with the settlement of some other, less regulated instruments. These often also have two-day settlement but seem less dysfunctional. So I’m not convinced that the T+2 settlement is the problem per se. To the contrary, T+2 settlement gives people a chance to correct errors, if any, before anyone takes the money and runs.

I can imagine a two-day settlement system that works better. Specifically, all parties would need to post cash with the clearinghouse before buying and to post stock before selling. Customer funds would be expected to be used for this purpose — no broker should ever go bust because their customers bought stock too fast. And, critically, unsettled receipts would be valid collateral, possibly with a small haircut. So, if you sell one stock, you can immediate use (most of) the proceeds to buy something else without needing to come up with additional collateral.

In effect, this would be immediate settlement plus two-day escrow.

FabHK4• 5 years ago

stock you do own, whose purchase long ago settled, is being lent out without your direct knowledge by the broker for a profit, which is like ... what?

A great thing that helps keeping the fees down, and understood by everyone in the industry, and (thanks to elaborate and battle tested systems) hardly ever a problem. Just like overbooking on airplanes.

There are enough problems in the financial industry; this is not one of them.

Next, brokerages are not allowed to use customer money as collateral, that's why they don't use "money that pretty obviously was there (had been deposited years ago)."

Regarding "people like to ridicule Bitcoin": the equity markets have many orders of magnitude more transactions per day than crypto can handle.

totalZero16• 5 years ago

We do know who owns the stock. That's how dividends are distributed.

The desire to have instantaneous trades is why the transfer of funds follows the agreement to trade. The system actually works pretty well; first you trade, then you settle the trade. It just works on a T+2 basis.

people like to ridicule Bitcoin for taking an hour to settle

What is the dollar value of bitcoin transactions per day, versus the dollar value of stock trades per day? Nasdaq alone trades something like $300B/day.

SkyMarshal3• 5 years ago

The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money. They didn't want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.

This was my impression too, especially from RH CEO’s interview on Chris Cuomo. He tried to communicate that they were effectively getting margin called, but without explicitly saying it, vaguely referring to SEC and exchange rules and regulations, hoping the audience would read between the lines. But not giving a straight answer just fed the conspiracy theories.

In hindsight, considering RH raised $1B additional capital a day or three later [1], it would have been better for him to have just been explicit about it.

“Yeah Chris, here’s the problem. As you know RH enables no-fee trading and instant trading the moment you join. We maintain margin accounts with our exchange partners to risk manage this.

However, the massive rapid influx of new users combined with the unplanned-for three-sigma increase in volatility in these stocks caused us to hit our margin limits with the exchanges. We’re getting margin called at unanticipated levels and just don’t have the capital buffer.

We’re raising additional capital as quickly as we can to fund our margin accounts and re-enable trading, but until that’s accomplished we have no choice but to disable buys on these high-vol stocks.

We disabled buys and not sells for two reasons: 1) only buys require margin in our system, and 2) if you think traders are angry when you disable buys, they get even angrier when you disable sells and lock them into a position that could suddenly go against them.

To our customers, we’re terribly sorry about this and are working overtime to solve the problem. We’re raising additional capital to increase our margins with our exchanges, and are updating our risk models to better accommodate such black swan events going forward. We’re listening to complaints and suggestions and evaluating additional ideas we hear to improve our service.”

Something like that I’m sure WSB would have bought, and eventually forgiven them for.

[1] https://news.ycombinator.com/item?id=25954539

malandrew• 5 years ago

But even once they did they still lowered the limit to 5 shares, then 3, then 2 then just a single share.

oysterberry4• 5 years ago

It is not a conspiracy but the system is broken.

Everyone seems to be missing the point of WHY collateral requirements have gone up. It is not because of volatility of the price movement, but volatility of whether the trade will clear.

The reason the trade might not clear is because of hedge funds or market makers that might go bankrupt, and not have the capital to pay for the shorts that they need to buy back. The collateral is there so that if the hedge fund can't pay, the clearing house or broker must pay. What seems to have happened is somewhere along the line a broker did not margin call the hedge funds fast enough, and DTCC with their collateral requirements has spread the risk from that one broker or clearing house to all of the brokers. In essence, the hedge funds losses are in a way "too big to fail" now because of the way the risk was spread.

In this system, everyone is working to protect themselves (thus not conspiracy), which in turn happens to be screwing over retail. The big issue is the broker somewhere or risk management team that did not force the short sellers to buy back their shares when it was still possible to do so without affecting the brokerages. They missed the time and now the losses might be too large to absorb.

Meanwhile, they have no problem margin calling retail. Robinhood might be faced with an impossible situation they didn't cause, but they also aren't pointing the finger at the culprits and where the problem started, which is some entity allowing the hedge funds to be over leveraged and then not de-risking from that leverage fast enough when the trade went against them.

A lot of this is explained by the webull ceo in this video: https://www.youtube.com/watch?v=4RS4JIEVyXM&feature=youtu.be

gruez12• 5 years ago

Meanwhile, they have no problem margin calling retail.

Presumably because hedge funds have more lenient margin agreements than retail. After all, it's easier to collect from a hedge fund with billions AUM compared to a bunch of millennials living paycheck to paycheck with $50k of student loans.

oysterberry4• 5 years ago

A more succinct explanation:

Hedge fund has huge unrealized loss that may bankrupt them if they try to buy the shares that they shorted back.

Their broker realizes too late, and if they margin call them now, the hedge fund might not have enough money to pay for the shorts. Thus, the broker will need to pay.

DTCC realizes this, and ups the collateral requirement so that the broker / clearing house has to insure someone will pay (whether it's the broker or hedge fund).

Because DTCC works with all the clearing houses and brokers, the risk from the hedge funds is suddenly everyone's problem to deal with together. By trying to deal with it, they close down trading for retail, and coincidentally aid the hedge funds short position.

Maybe the answer to this is DTCC needing to have collateral requirements per clearing house or broker where they think the risk is highest (the bankrupting hedge funds). Maybe it's regulation to not allow such high leverage or force margin calls faster so the losses can't be too big to fail. Hopefully something is done to fix it!

PragmaticPulp9• 5 years ago

Your argument relies on the assumption that hedge funds haven’t been margin called, and that they haven’t closed their early short positions. Many funds have claimed they closed early shorts.

The piece people seem to misunderstand the most is that total short interest won’t tell us if specific shorts were closed out. New shorts can replace old shorts at the higher price.

It’s like arguing that nobody could have lost their job or got a new job because the national unemployment rate was unchanged. Aggregate numbers don’t tell us about specific shorts.

Is it really so hard to believe that people would want to short the downside of an obvious short-term market bubble?

tonfa7• 5 years ago

The reason the trade might not clear is because of hedge funds or market makers that might go bankrupt, and not have the capital to pay for the shorts that they need to buy back. The collateral is there so that if the hedge fund can't pay, the clearing house or broker must pay.

If anything wasn't the market worried that RH would go bankrupt (when the GME inevitably crashes)?

Unlike retail, hedge funds and market makers have risk modelling, and they got out of trades they can't afford (plus all the shorts had collateral, if they can't afford it the broker closed it).

134152• 5 years ago

About a dozen brokers simultaneously halted buying, not just Robinhood.

PragmaticPulp9• 5 years ago

Because the cost of collateral spiked in meme stocks in unison. They had to move money around to post the massively increased cost of collateral.

Everyone seems to be forgetting how fast this all happened.

ac2u3• 5 years ago

Everyone assuming a conspiracy theory needs to read this.

I'm not sure of your point here. Anyone that assumed there's a conspiracy theory is pretty much right. Now, if you mean the 'Brokerage X is in cahoots with this particular hedge fund theory', then yes, it's fair to argue that's debunked.

But the overall conspiracy theory of "there are forces conspiring against the natural supply/demand market forces", well, they've pretty much all had the nerve to come out in the open and admit it.

It's not the stockholders fault that all these clearing intermediaries use shitty fragile risk models that haven't accounted for rare events and instead of facing the music they've artificially turned the marketplace for these stocks into sell-only in order to stop a further price rise and exposing themselves further.

To be clear, the rest of your comment seems that we're in agreement, expect that I would go further to call a spade a spade, it's absolutely a conspiracy.

pja• 5 years ago

The availability of liquidity in the market at any price & at any time is an illusion. It’s an illusion that holds most of the time, but nevertheless it isn’t real.

When the market is under stress, the illusion falters & the plumbing starts poking through the gaps. If you want to be able to buy and sell shares with very fast confirmation at the prices quoted in the market then you need intermediaries who can extend the credit that enables that transaction to happen. When the market is under stress, that credit becomes more expensive & liquidity falls away. This isn’t a conspiracy or the result of collusion, it’s a consequence of the structure of the market.

andylei• 5 years ago

it's absolutely a conspiracy

I think a "conspiracy" requires some sort of actual coordination. A bunch of actors doing the same thing for the same underlying reason isn't a conspiracy. Lots of people going to sleep when it gets dark isn't a conspiracy.

PragmaticPulp9• 5 years ago

Who, specifically, do you claim is conspiring? And to what end?

These collateral requirements were implemented to reduce systemic risk of the system failing under extreme volatility. It was designed to prevent collapse, requiring government bailouts. It wasn’t designed to break a consumer-facing investment app that didn’t even exist yet.

jcranmer2• 5 years ago

It's not the stockholders fault that all these clearing intermediaries use shitty fragile risk models that haven't accounted for rare events

Those risk models were added into the system by law because the prior risk models said that there was no way anything could go wrong so that when things did go wrong during a "rare event," the entire financial system seized up practically overnight.

This time, the only people who are complaining are the people who think they're driving the people shorting Gamestop out of business, while the rest of the financial system and the greater economy looks on in merry amusement.

scatters2• 5 years ago

they've artificially turned the marketplace for these stocks into sell-only in order to stop a further price rise

What's your basis for attributing this intent to the discount brokers? It may have that effect, but as explained in the article it's fully accounted for by their need to conserve capital.

tarsinge• 5 years ago

And also: it happened at nearly at the same time, in the middle of the week were volume was getting lower to the days before. The price crashed just after, and the next day we have news that a lot a short positions were closed[0].

[0] https://twitter.com/ihors3/status/1355234358194556928?s=21

dasudasu• 5 years ago

That's entirely possible and even likely, but that's still a huge market failure that should be corrected. You can't have a situation like this happening to some stocks exclusively.

Where were those increases in required DTC collaterals when TSLA/NIO/your favorite SPAC was going through the roof? The conspiracy just moves to whoever unilaterally decided to raise collateral requirements from 2% to 100% -- a 4900% increase, and nice and whole numbers that seem fully arbitrary. A situation in which people have settled in their accounts should not depend on some backdoor credit wizardry that ultimately damages retail investors.

tonfa7• 5 years ago

Were those stocks moving +100%/-50% daily?

pfortuny2• 5 years ago

Lying (and hiding this type of information behind dodgy reasons is tantamount to lying) is illegal also.

Did they do a per-customer assessment?

Why did they not just close shop for the day? At least that would have been honest.

beezle4• 5 years ago

So they should penalize all their other clients who are not involved in trading GME? Everyone else should pay the price because DTCC raised collateral requirements to settle GME trades?

gruez12• 5 years ago

Lying (and hiding this type of information behind dodgy reasons is tantamount to lying) is illegal also.

Were they lying? They made carefully crafted statements that were true, which wsb proceeded to extrapolate to fit their narrative that something nefarious is going on.

Did they do a per-customer assessment?

The deposit requirements are not dependent on the customer's credit abilities (see also: they can't use customer funds), it's directly dependent on what stock they're buying.

Why did they not just close shop for the day? At least that would have been honest.

"I wanted to cash out last week but robinhood shut down! Robinhood caused me to lose 80% of my investment!"

siruncledrew• 5 years ago

The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money.

IMO, this is why anyone wanting to "trade seriously" should NOT use Robinhood.

Robinhood is like the fast food of investing. It's designed for convenience, but makes you worse off in the end.

If you want a legit trading platform, then download Thinkorswim, Tastytrade, Schwab, Webull, Etrade, or Fidelity.

Any of the above will tell you way more information than Robinhood, give you significantly better charts, and various extras like News and Level II data for free (at least Thinkorswim does).

Honestly, just look around at the different offerings, maybe give them a test-drive, and choose whatever one suits you. Yes, you will probably have to learn the platforms, but that learning is valuable knowledge.

Hacker293823• 5 years ago

Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines?

Why didn't the recent-ish pot stocks bubble or the dry shipping bubble cause the same restrictions?

beezle4• 5 years ago

This is a portion of a message sent to all users that IB sent out Friday afternoon:

We are seeing unprecedented volatility in GME, AMC, BB, EXPR, KOSS and a small number of other U.S. securities that has forced us reduce the leverage previously offered to these securities and, in certain instances, limit trading to risk reducing transactions. IBKR currently has no restrictions on trading shares in those companies, and customers can open or close positions in those shares. Like many other brokers, IBKR placed options on certain of those stocks in closing only earlier this week. The plan is to lift those restrictions in an orderly manner while closely monitoring market conditions. To be clear, IBKR has not restricted clients’ ability to close existing positions in any of the U.S. securities subject to market volatility, and does not plan to do so.

The limits IBKR has placed have applied to all customers and were not limited to “retail clients” or any other group.

hctaw• 5 years ago

It sounds like the problem was sign-ups then, not trades.

ar_lan2• 5 years ago

The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money. They didn't want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.

All of the previous bits of your message don't matter because this right here killed any chance of "good faith" people might have in Robinhood. Even if there really is no conspiracy, I personally am moving 100% to Fidelity after this fiasco (in fact, I moved everything but my remaining GME that exists in Robinhood already). I honestly, at this point, have about 20% faith that Robinhood will allow me to liquidate that GME - instead they will probably remove the "sell" button at some point too.

I explicitly do not trust Robinhood anymore. It's one thing to say "we fucked up", or even "we can't handle this load anymore, we are going to need to remove the buy button". I'd be pissed but wouldn't want them scorched - at this point I hope the whole company goes bankrupt instead.

gkoberger3• 5 years ago

I don't think there's a conspiracy, but I also don't think they get a free pass on this. They're going to lose much of their base, and they deserve to – if your whole thing is retail traders, and everything stops working when it matters most, then people are going to look elsewhere.

The CEO lied on TV about the reason, there's rumors that their investors asked them to stop it (I mean, they got $1Bn relief... of course it was at least a topic of conversation), and they make a ton of money ($100M/Q I've seen) from one of the big players in this (Citadel).

I'm not saying there's a conspiracy, exactly... but I am saying when it came down to making hard choices, it doesn't take a full-blown conspiracy for them to make some of the decisions they made that erred on the side of benefiting institutional investors.

All their cash (via both raising capital and selling data to funds) comes from institutional investors rather than average retail investors, and that was recently made clear to a lot of people.

sidibe9• 5 years ago

"I don't think there's a conspiracy" followed by hints of conspiracy.

I think Robinhood didn't do anything wrong (or even incompetent), but they are screwed because the prospect of losing money (actually just the potential of more money, they haven't lost any yet if they close now since the mania isn't done) is emotional and triggers outrage and a need for someone to blame.

matwood3• 5 years ago

They're going to lose much of their base, and they deserve to

Where are they going to go? Even with their problems, the RH app is pretty good - especially for the first time trader with a few hundred dollars. My primary brokers app and website works, but is very cumbersome. The closest thing out there might be ToS from when I used to use TDA.

Spooky232• 5 years ago

It’s in Robinhood’s interest to speak in ways that indirectly support the conspiracy message.

They don’t get implicated in the conspiracy statements, but benefit from attention seekers like the Barstool guy screaming and hand waving. That distracts from the pretty obvious reasons why Robinhood is an awful and dangerous business and business model.

Now the mob is moving on to crypto and other scams, so the Robinhood PR strategy is perfectly executed and frankly, genius.

thr0waway2• 5 years ago

That's kind of how markets work though - when things are going most in your favour it's hardest to capitalise on it as price going your way means few people want to take the other side. And there's more things going into a price than just forecast of future prices - there's also liquidity, credit risk, operational issues, etc.

762236• 5 years ago

They get a free pass from me. They behaved as expected (thus predictably), and saved their company. There has to be a feedback loop that limits Robinhood's (and any company's) abilities to handle meme trades. I didn't need any explanation from the CEO, because what was happening was obvious to me (and I know nothing about finance --- only that money isn't free and that there has to be a feedback loop).

dcolkitt2• 5 years ago

they make a ton of money ($100M/Q I've seen) from one of the big players in this (Citadel).

No. Citadel Securities (the market maker) is a separate entity than Citadel Investments (the hedge fund). Citadel Securities is making money hand over fist from GME. As they always do during periods of high volume and volatility. Robinhood shutting down trading in GME almost certainly cost Citadel Securities a fortune in lost profits.

Nor is there even any real evidence that Citadel the hedge fund has a very significant exposure to GME. For the entire month of January the main funds have only lost 1% in GME and 3% total.[1] Probably less in total than the amount Citadel Securities has made off the trading.

[1]https://www.bloomberg.com/news/articles/2021-01-31/the-citad...

grogenaut• 5 years ago

You don't need to think one way or another. There's a process called "Discovery" and we'll likely get to it and find out what happened. Or they'll settle and we won't find out. Given the number of class actions this will happen.

thefounder7• 5 years ago

There is no conspiracy theory. Simply put both the hedge funds and the brokers have a common interest to ripoff the retailer. It's not like they are hiding, at least the guy from Interactive Brokers https://m.youtube.com/watch?v=7RH4XKP55fM

fortran773• 5 years ago

Why did this congresswoman, a champion of the marginalized and oppressed, call for a hearing? And why only for Robinhood, when several firms had the same policy? And why is the SEC not also the subject of her proposed "hearing?"

https://twitter.com/AOC/status/1354830697459032066

tedunangst9• 5 years ago

Because the people who feel robinhood wronged them are most likely to donate to her campaign. Not as many IBKR users in her fan base.

Nullabillity• 5 years ago

The sentence right after that, in her first reply to herself:

Inquiries into freezes should not be limited solely to Robinhood.

whateveracct• 5 years ago

because it's mostly for show?

gulikoza• 5 years ago

It's not just RH that has disabled buying, other brokers have as well. Most notably IB and Trading 212 (which uses IB) with the IB CEO going on TV telling how that benefited them. There's clearly more going on than just some collateral bullshit that RH is spewing...

Avicebron• 5 years ago

prag you have been a warpath, I hope robinhood is paying you well for this

jzoch• 5 years ago

Its in poor taste to call it a "meme stock purchase" when it legitimately has a chance to make (and for many has already made) investors a lot of money. While there are memes around the stock purchase (no different than with TSLA) it is a very legit investment strategy and market opportunity.

This was not Robinhood denying a couple redditors some meme material - it was a company denying many regular americans a once-in-a-lifetime investment opportunity (and in itself the practice may have suppressed the power of that investment)

jonnyone• 5 years ago

Is there room for the argument that Robinhood should have seen this coming days, possibly weeks beforehand, and been raising capital preemptively?

In addition, DTCC raised collateral for specifics stocks from 2-3% to 100%, is there not room for investigation why aside from "volatility"?

awillen2• 5 years ago

The problem is the CEO specifically said they did not have a liquidity issue. That means one way or another, he's a straight up liar.

fnimick• 5 years ago

Read between the lines. They didn't have a liquidity issue after they disallowed the buying of stocks that had the 100% capital requirement from the clearing houses; hence, they no _longer_ had a liquidity issue.

Waterluvian• 5 years ago

And yet if I recall correctly, they were quite deceptive and cagey about simply telling everyone the truth upfront. Instead they said it was for everyone's own safety.

qwertox• 5 years ago

Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines?

This sounds more like an insurance issue which Robinhood didn't want to deal with.

akiselev• 5 years ago

The biggest problem is Robinhood's poor messaging. It's clear their highest priority was to avoid admission that they were running out of money. They didn't want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.

What I don't get is, why is the fear of a bank run relevant? It's a startup and most people seems pretty YOLO about using it. I don't know anything about investor sentiment so I'm genuinely curious - I thought the SIPC covers the FDIC equivalent for RH accounts that show any semblance of trading.

In this frothy market where a bunch of investors barely do due diligence, having collateral problems from too many customers joining too fast sounds like one of those rare "great problems to have," as evidenced by the line of credit they just got extended. Even with the added risk, investors are probably lining up. I was surprised that the CEO didn't go down that line of reasoning for the marketing effect.

ameetgaitonde• 5 years ago

It might not be fear of a bank run, but of enforcement from the SEC or FINRA for not maintaining sufficient net capital.

If they did run afoul of these regulations, it's probably advisable to not admit it on televised interviews.

That would also explain why they accepted a $1 billion investment rather than expanding their credit lines, and continued to limit purchases of Gamestop stock.

Monday at open, when last week's option contracts are settled, is going to be interesting.

tempsy3• 5 years ago

I’m waiting for an explanation why Starbucks is on the restricted list. It’s not volatile.

tedunangst9• 5 years ago

The collateral requirements depend on net buys vs sells. I'm guessing RH was tapped to the limit, and the buy limits were applied to anything with unbalanced orders. That applied to a bunch of stocks then, some that were up, and some that were down and looked cheap. (SBUX and AMD were among those down after earnings last week.)

AndrewUnmuted• 5 years ago

Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines?

I don't think anyone is discounting this. The problem is that after going through so many of these problems with various pre-IPO startups, we appear to have not learnt our lesson.

- Facebook made us think it was safe to publish our real names and pictures online, and attach them to a public profile. When cyber-stalking and cyber-bullying became a thing, they feigned shock & ignorance.

- Twitter used to suggest anonymity and low-intensity were the main goals of their product. Then they doubled the character limit just as doxing and other forms of real-life intimidation began picking up steam on this platform.

- YouTube used to portray itself as a free speech video platform, encouraging users to upload any and all videos that don't explicitly break the law. Now YouTube polices its content to such an extent, and with such murky and ever-changing policies, that speech which is perfectly legal and protected by federal law is banned without explanation. It now even inserts itself into the conversation with a degree of authority that pre-Google YouTube would never have dared attempt.

mancerayder3• 5 years ago

Great. Now care to explain how the same thing happened with TDA, IB and Schwab? All under-capitalized as well?

atlgator• 5 years ago

The logical fix would be don't allow people to buy on proceeds that haven't settled yet. Other brokerages do this regardless of the security. But instead they specifically limited buying only certain securities that their hedge fund affiliates happened to have shorts in, thereby eliminating buy volume entirely and causing the stock price to go down. It's too coincidental to ignore when there was clearly a more precedented alternative.

hayst4ck3• 5 years ago

People create excuses all the time for everything. "You shouldn't hate Robinhood because they were new/incompetent/unprepared." Maybe. Maybe there's 10 different sources to they could have gotten the money from and they chose not to as well. Maybe there were actions they could have taken to solve the problem and chose not to because they were more aligned with the problem not being solved.

This is why I don't like this explanation. At face value it is a good excuse, but when you do an analysis from an ethics and alignment point of view:

  Citadel is in bed with Melvin.
  Robinhood is in bed with citadel
  Robinhood sells data to citadel (this almost certainly is at the direct cost of its users)
  Robinhood does transactions through citadel (skimming some of the money off of users transactions)
  *Robinhood is more aligned with citadel than retail*

The whole point of an excuse is to seem reasonable. Even if the excuse is true, the underlying relationships are very smelly. All of this from every side is speculation until discovery is done.

Counterpoint, trading firms across the board were asked to alter behavior: If "You wouldn’t believe the shit going on behind the scenes right now. 10 hedge funds have fallen, and our clearing firm emailed to block ALL trading platforms from $GME, $AMC, and the like." is true, then that is quite literally a conspiracy. https://www.reddit.com/r/IAmA/comments/l81l3g/dan_pipitone_c...

astrange11• 5 years ago

Citadel is in bed with Melvin.
Robinhood is in bed with citadel

The underlying relationships don’t exist because the two companies named “Citadel” here are different companies.

dalbasal2• 5 years ago

There's a little more depth to this. It's not just an influx of users or the margin they provide to fund accounts before user money arrives to RH's bank account.

Clearing houses, and clearing houses' clearing houses' have raised capital requirements for buying gme from 1%-2% to 100%. This has to be the brokers' capital. User capital doesn't count, so it doesn't matter that a user has fully paid for the share. This is unintuitive, but CEOs of several brokerages have confirmed.

That may let RH off the hook (even they they could have borrowed easily, to cover fully paid, unleveraged purchases), but it does push the "conspiracy" question downstream. Why did clearing houses make this call? After all, it's not RH's that's liable to be unable to pay. They've already paid.

At this point, there are enough credible reports confirming that clearing houses have been shutting down, or trying to, memestock buys at client brokerages. They probably do have market integrity reasons for doing so, but the specific mechanics are unclear.

Also regardless, this is a decision that changes the game/rules, affecting winners, losers, outcomes. Who was the power to make these calls. I guess it isn't a regulator.

Meanwhile, RH and other brokerages are responsible for whatever misunderstanding and conspiracies happened. "Because the stock is volatile and we're protecting our customers from volatility" is a naked lie. Start with a lie, and people will assume the worst.

FWIW, I think it's telling that the CEO of Robin Hood was willing to imply liquidity issues to avoid talking about market makers or clearing houses. I don't know what it tells, but I guess we'll find out in the coming weeks.

One thing that always comes out of these scandals is some insight into the wall street "infrastructure."

sumedh• 5 years ago

Clearing houses, and clearing houses' clearing houses' have raised capital requirements for buying gme from 1%-2% to 100%.

Was the requirement raised 100% in the past for other stocks.

Paradigma11• 5 years ago

Isn't there also the related/same problem that WSB users on RH explicitely and intentionally want to ruin the short sellers which unavoidable would leave the middleman/RH holding the bag?

Suddenly your users, not customers those are the market makers, are your opponents.

croutonwagon• 5 years ago

It’s also worth noting that’s a different model than a lot of the big companies.

For example you don’t get margin on fidelity unless you apply for it and sign waivers and attest you can cover it.

And any intraday trades will garner warnings if you don’t have the cash in account to cover. After a couple they will axe the ability.

Robinhood intrinsically allows a lot more leverage and risk for their customers by default. And this isn’t their first snafu. They had people exploiting their margin defaults for basically infinite leverage a year ago, leverage these 20 somethings would never be able to cover.

fny• 5 years ago

Keep in mind Robinhood could have just restricted said herd. If they did in fact have such huge liquidity issues, it's extremely irresponsible to allow tons more margin accounts to come online.

chrismcb• 5 years ago

But... Wouldn't that mean they need to halt all buys? Why only the ones being targeted?

ineedasername2• 5 years ago

The biggest problem isn't poor messaging, it's biggest problem is that it's running too lean if it can't cover unanticipated calls for collateral. This is a game that requires some deep reserves. Hopefully when this settles down and they're able to reduce collateral requirements with the clearing house they'll keep the extra on hand.

qazpot• 5 years ago

There is no temporary lapse in Integrity.

dublidu• 5 years ago

They could have simply banned buying the stock using unsettled cash or margin. Instead they banned all buys and did a terrible job explaining their reasoning.

jb775• 5 years ago

I call BS. If margin were an issue, they could've easily paused that functionality. (just like how they magically paused trading on specific stocks)

I'll stick with Occam's razor here. They were trying to appease the hedge funds who pay them hundreds of millions of dollars a year.

huehehue• 5 years ago

No mention of fractional share mechanics. Anyone have info on how those work?

I see claims floating around of $2k/share trades, but only on fractional share sells. I wonder if people are confusing a real squeeze with Robinhood burning money to piece together whole shares.

SpicyLemonZest3• 5 years ago

Fractional shares are an accounting convention within the accounts of individual brokers such as Robinhood, giving multiple customers a partial claim on a unit of stock the broker holds. They're never tradeable on the actual exchange.

modeitsch• 5 years ago

I want to switch off from Robinhood which alternative are you recommending ?

alecco2• 5 years ago

Whatever you pick, remember to transfer instead of selling. But it might take days to happen. Maybe even weeks with current RH situation.

totalZero16• 5 years ago

Actually, if you sell you don't have to wait so long. And you don't have to pay $75 in fees to RH.

Why would you prefer to transfer? Just hit the bid and move the cash IMO.

EDIT: wasn't thinking about the tax implications for those who intend to carry positions greater than a year.

tempsy3• 5 years ago

This doesn’t explain why the list of restrictions on buying expanded to 50 stocks, including low volatility stocks like Starbucks which is now limited to just 1 share.

totalZero16• 5 years ago

Lol that's because it's speculation and backwards rationalization. I'm sure they will eventually update the apologetics to somehow address the low-volatility instruments as well.

totalZero16• 5 years ago

I don't buy the suggestion that DTCC deposit requirements left Robinhood and other brokers unable to facilitate all transactions. It is a backwards rationalization, trying to put technical reasons to a fear-driven decision.

First of all, they limited opening trades for all accounts, not just accounts buying on margin or with unsettled funds. If you have a cash account and you buy a stock, your broker has plenty of time (2days) and plenty of funds (all of them) to clear your trade.

Secondly, many brokerages only blocked options transactions. These don't clear through DTCC at all. They clear through OCC and net purchases of options actually capitalize the clearinghouse and can in some cases actually be advantageous to the broker by getting their accounts long premium (if the broker is net short premium, the OCC charges them more).

It's more likely that the brokerages didn't have enough staff to reconcile the trades, or that Robinhood's fake margin accounts (Robinhood Instant) left them in a position where they had to choose between telling people that they have to wait for funds to settle, or limiting trades.

Any brokerage that limits trading in an asset for which the exchanges and clearinghouses are functional is harming its customers by preventing their market access. Weird hand-wavey apologetics about the DTCC or OCC don't explain why the retail brokerages had to limit trading in cash accounts.

stu2b5014• 5 years ago

Brokers are not allowed to touch client money to submit the deposit. That the purchases are settled cash on the user's account makes no difference, because none of that money Robinhood could use to clear the deposit.

zaroth11• 5 years ago

But it’s not client money the second the trade executes?

totalZero16• 5 years ago

If you think brokers are not allowed to use a customer funds to settle that customer's transactions, I've got news for you buddy.

alisonkisk4• 5 years ago

I read that "cash accounts" don't really exist from the clearing perspective, because the broker can't counts cash accounts as part of its collateral.

Cash accounts (which is just a margin account with 100% collateral in cash) protect the broken against client default, but don't protect the clearinghouse from broker default. It's an opaque API wrapper, in programmer language.

totalZero16• 5 years ago

For cash accounts, the broker already has settled cash when the trade is made, and can immediately post that cash to the clearinghouse.

MrMan12• 5 years ago

Comments that start with saying "I don't buy" the real-world non-simple explanation, even in the face of mountains of real world evidence, are not in the spirit of any site that pretends to be some kind of better place.

Conspiracy fantasies should be moderated down by the administrators. "Wide eyed curiosity" comes second to pragmatism, realism, lack of narcissism and entitlement.

vamos_davai• 5 years ago

There's no difference between conspiracy and hypothesis.

PragmaticPulp9• 5 years ago

It’s scary how much conspiratorial thinking is gaining traction in the GameStop story.

Despite the narratives about people buying GameStop for altruistic purposes or for sticking it to Wall Street, it’s obvious that most people bought because they were told the trade couldn’t fail and this was an easy way to double their money (or more).

When it doesn’t work out, I’m worried that people will reach for more conspiracy theories instead of realizing that the latest GME buyers were always guaranteed losses.

Qwertious• 5 years ago

I like how you criticise the above comment for saying "I don't buy" based on high-minded notion of better spirit of discussion, and then in your second paragraph imply it's a "conspiracy fantasy".

Bonus points for your completely failure to address the arguments of the comment.

andrethegiant• 5 years ago

A Soros-owned space laser is a conspiracy theory. Citadel forcing Robinhood to disable buys due to their massive short position is not.

I feel that many people are lumping hypotheses into the conspiratorial bucket because of Qanon and current events. Are all skeptics conspiracy theorists?

PragmaticPulp9• 5 years ago

First of all, they limited opening trades for all accounts, not just accounts buying on margin or with unsettled funds.

RobinHood’s UX was built around the concept of hiding margin details from clients. All Robinhood accounts are margin accounts by default. Inbound funds transfers give people margin buying abilities before the trades arrive.

Is it really so hard to believe that they hadn’t pre-planned the ability to limit margin purchases on a single stock? This is an unprecedented event and it happened very, very fast.

Robinhood likely only had a few options to roll out immediately. Let’s not pretend they could have reworked their trading platform, tested and deployed the changes, and implemented the action in a matter of hours.

zaroth11• 5 years ago

Is it really so hard to believe that they hadn’t pre-planned the ability to limit margin purchases on a single stock?

Yes, this is impossible to believe. Different stocks already have different margin requirements. Turning off margin trading for specific stocks is a fundamental system requirement.

TuringNYC4• 5 years ago

If this was the case, why not just provide an honest explanation rather than “we’re restricting this for your own good”

paulgb5• 5 years ago

If you have a cash account and you buy a stock, your broker has plenty of time (2days) and plenty of funds (all of them) to clear your trade.

If they have two days to pay, DTCC is taking on some counterparty risk. Isn't that reason enough for DTCC to increase the deposit requirements when they see risk increasing? (Not a rhetorical question, you seem to know what you're talking about so I am curious what the answer is.)

totalZero16• 5 years ago

The purpose of a clearinghouse is to manage that counterparty risk prior to settlement, and ensure that settlement occurs smoothly. Some clearinghouses like OCC carry counterparty risk throughout the life of a trade.

The counterparty in question is the clearing member, ie Robinhood. If the trade is fully cash-secured then there is no risk that Robinhood will go under because it has 100% of the cash required to make good on the trade (assuming they still make enough from PFOF to cover their operating costs for a couple of days.) And for existing margin accounts, they just have to continue the practice of aggressively closing positions that fall below maintenance margin.

kmonsen2• 5 years ago

That is true, and maybe most likely what’s happened.

Just realized that DTCC changing the deposit requirements seems completely non-transparent and arbitrary (I agree it was a plausible reason in this case), abs could be used to help their friends in hedge funds that had shorted, out of someone paid them to do this.

The fundamental problem is that the stock market has substantial different rules, for example see after hours trading, which can be used to take margins away from unprofessional investors.

sokoloff6• 5 years ago

your broker has plenty of time (2days) and plenty of funds (all of them) to clear your trade

I think you’re thinking about it wrong. All brokers contribute to this posted collateral and those funds, collectively, serve as a fund of mutual insurance in the event of a failure or near-failure of a participant. These are not "partial payment of customer trades, with the rest to come later".

In order to prevent customers from being affected by that near-failure, the clearinghouse first goes to that struggling broker and then to this mutual insurance fund. That is the reason why this must be funded with broker funds rather than customer funds, so the fact that you 100% paid for your shares doesn’t mean that the broker has “all of the funds” required because they can’t use your money to post this. (Otherwise “to protect customers” is not accomplished.)

dannyw• 5 years ago

DTCC raised collateral requirements for GME from 2% to 100%.

spurgu• 5 years ago

Source?

tptacek16• 5 years ago

Is that documented somewhere? I absolutely believe it, I'm just curious.

hahajk2• 5 years ago

Yes, we know capital requirements go up, but they cut off buying even for those with sufficient money in their accounts. Money that was transferred from a user bank account and now (I assume) exists in a RH-controlled account. So if RH needed the funds they didn’t they use the money users already sent them?

The Webull CEO made an offhand comment “we couldn’t use funds from our users’ accounts due to regulatory restrictions.” I haven’t found what restrictions those are (so if you know, thank you for sharing!)

I’m guessing the money in user accounts isn’t actually held as liquid cash. I bet they lend it out like a bank which means a 1000% increase in liquidity requirements meant a leveraged bank-run situation.

stu2b5014• 5 years ago

Brokers can't use client money to make the deposit.

tzs3• 5 years ago

I know almost nothing about buying/selling stock and brokers. (With two exceptions [1], all my investments have been the "buy shares of a mutual fund and hold it forever except for occasional exchanges with other funds I'm going to hold forever, or when I need to make a big purchase like a new car" kind of investments). Thus, I'm quite confused here.

What is this "deposit" in this case?

Could someone walk through what happens in this case: I have $X at my cash account at a broker, and I direct that broker to buy something that will cost $Y (including any broker fees, commissions, required tax withholding, etc.), where Y <= X.

I presume that ultimately I end up wit the thing I wanted to buy, and my cash account ends up with $(X-Y)?

So what happens as a step along the road to making that happen that requires the broker to use money that is not money from my cash account?

[1] In 1998 or 1999, the newsreader I used on Red Hat started corrupting my .newsrc after an update. I tracked it down to a change in one of the ctype macros in the C standard library. The newsreader assumed that all the flags fit in a char, which had been true before the update, but now wasn't. I submitted a patch that changed one declaration in the newsreader from "char" to "unsigned short". When Red Hat was going to IPO, I was surprised to get an email telling me that since I was a contributor to Red Hat, I could buy Red Hat stock at the IPO price. I bought a few thousand dollars worth that morning at $14/share, sold them that afternoon at something like $70/share, transferred the money out, and never touched my ETrade account again.

Who says submitting patches to open source doesn't pay? :-)

The other time was when T-Mobile gave every customer one share of stock. Eventually they got tired of having to deal with having a bazillion people who owned one share each of their stock, and told us we had to transfer our shares to the broker of our choice or sell. I sold.

elihu• 5 years ago

To me it seems strange that that isn't allowed.

alecco2• 5 years ago

Robinhood had many, many issues before. Very often at very critical times when the market moved.

And their business model is a disgrace. As many say, PFOF should be illegal.

gruez12• 5 years ago

And their business model is a disgrace. As many say, PFOF should be illegal.

You get equal or better prices than on the open exchanges (NBBO), and they kick back money to the brokers making commissions-free trading possible. What's not to love?

cadence-• 5 years ago

Interesting explanation. I wonder if hedge funds that short enormous amounts of stock include this scenario in their risk calculations. I expect that yes, they are well aware that if the price of a stocks runs away too much, these mechanisms will force brokerages to disallow buying, so that they can buy back the stock at lower prices.

However, there is one thing I still don’t understand from the article. Why were hedge funds allowed to still buy the stock? If this liquidity problem really happened as described, shouldn’t the trading be halted completely? I suspect the answer is that they don’t use a brokerage to buy and sell stocks. They probably have some kind of direct access to stock exchanges so they are not bound by the limitations set by brokers.

lordnacho5• 5 years ago

Why were hedge funds allowed to still buy the stock?

They use a prime broker, which is a fancy way to say Goldmans, JPM, Citi, etc's institutional brokers, which also have the same relationship with the DTCC. And their prime brokers did not leave too little cash at the clearinghouse.

That's if you buy the story here. I'm still mulling it over. I used to run hedge funds, and indeed PBed with these big names.

stu2b5014• 5 years ago

Whether or not you were able to buy gamestop was more about how wealthy the broker you used was. If you were a retail investor on Fidelity, you could even buy options still.

Hedge Funds naturally have, well, wealthy brokers tailored for institutional investors.

MrMan12• 5 years ago

Hedge funds tend not to use shady brokers who don't have strong balance sheets and competent risk managers and technologists. The list of better brokers is long.

CivBase8• 5 years ago

This doesn't seem to add to the story. This doesn't explain why they had to keep selling. It only explains why continuing to sell didn't put them in financial peril.

Robinhood took actions which they knew would manipulate the market in a particular way - one which was beneficial to them and their business partners. That's why people are upset.

paulgb5• 5 years ago

If they had blocked selling and it later came out that they didn't need to, people who had wanted to sell would be understandably pissed as well. It's a damned-if-you-do, damned-if-you-don't situation.

I think they chose the least-bad of the two paths, because even if they blocked their own customers from selling, customers holding GME at other firms would be able to sell. Would you want to be with a brokerage who blocked you from selling when they could have allowed it?

CivBase8• 5 years ago

I absolutely would prefer that and I don't even own GME. Anything else is blatant market manipulation, whether or not it's intended.

IMO, it should be illegal to facilitate only selling or only buying. Brokers should be forced to offer both or neither.

youeseh• 5 years ago

The order should have come from the SEC to block trading across the board. No buying and no selling until the current orders are settled and there's liquidity available for more trading.

shakezula2• 5 years ago

That’s exactly my problem with it. Why leave sell as an option then? Sure; if you can’t buy more because you legally can’t, that’s fine. But leaving the sell option on felt planned. I would assume in a situation like this it would be most responsible to simply disable trading on it entirely until it was back to manageable. At least then they would have plausible deniability.

herodotus• 5 years ago

If a broker blocks selling, and the price drops, there is real damage to the holder of the shares. If they block buying, there is only a potential hypothetical loss.

CivBase8• 5 years ago

You're only looking at longs.

If a broker blocks buying and the price goes down, there are real benefits to the holders of the shorts.

Hence the concerns of market manipulation.

lordnacho5• 5 years ago

Surely RH risk management would see that both the 99% VaR and the gap risk have jumped, and draw the credit lines before their DTCC margin dried up? What's the worst that can happen if you top up the account a little more than you need? Whatever you save on interest can't be worth the reputation damage?

There must be more to this story, as other brokers got in the same pickle. Perhaps it is some modern form of balance management that the new guys prefer, akin to just-in-time.

stu2b5014• 5 years ago

No one ever accused Robinhood of being competent.

Although I think you're underestimating the difficulty of pulling billions of dollars out of nowhere. Robinhood was forced to sell equity to meet the deposit requirements - that's a harsh ask.

lordnacho5• 5 years ago

That is another oddity. If there was no insolvency problem, presumeably all that was needed was a loan?

Traster• 5 years ago

Not only are they probably not operationally prepared to just pull down credit on no notice, but there's an additional risk - the member's VAR calc is calculated using a EWMA (exponentially weighted moving average) volatlity estimate. What this means is that RH can exhaust its entire credit line, and despite allowing no additional buys, their deposite required still increases because volatility went up. Breaching DTCC's requirements with no way to fix the issue.

soared3• 5 years ago

3% to 100% collatoral isn't covered by topping of the accounts though. RH was doing hundreds of millions (?) in $GME per day, so that increased that number from something like $3MM to $100MM.

sn414• 5 years ago

Never understood bailouts of hedge funds, whether by government dole, or by corporate collusion as Robinhood is now doing.

On a fine day, these buffoons are all Ayn Randish free marketeers. They should be willing to live by their principles even in downturns.

lordnacho5• 5 years ago

I haven't read the books. Do any of the free market characters ever end up failing?

sn414• 5 years ago

No, compassionate society is weak and prevents John Galt from achieving his true potential. Wasted 2 of my crucial formative years reading those books when I should have been studying for university entrance exams.

There are some interesting ideas. But my personal guide is Thoreau, who says "that government is best that governs the least". I've never heard anyone call Thoreau a libertarian, but I'd rather be a Thoreau libertarian than Rand-ian.

endtime• 5 years ago

Yes, at least for a time. In general it's quite rare for a book to end with the protagonist failing, but in The Fountainhead, IIRC, the protagonist spends an extended period of time doing manual labor rather than architecture because he cannot practice it freely.

alisonkisk4• 5 years ago

I see no evidence of collusion so far, but if there is any, it would be for Randian self interest, so I don't see your point.

sn414• 5 years ago

I was just saying that a short squeeze is a known risk for short positions. As a small-scale investor, I also knew that Covid and stay-at-home means that a lot more small time investors will be involved in 2020-21, skewing market valuations in crazy ways. GME was only one manic instance. Why was such an issue raised over this particular incident? Why call for regulation, and squeezing Robinhood to freeze buys?

I am not advocating the buying spree, since a lot of small-time investors will get hurt if and when the price comes down. The SEC should issue advisories. But Hedge Funds shedding tears is hardly justifiable.

gruez12• 5 years ago

On a fine day, these buffoons are all Ayn Randish free marketeers. They should be willing to live by their principles even in downturns.

Is wall st some sort of hive mind? How do you know whether they supported the deposit requirements in the first place? What if there weren't deposit requirements, and that led to different calamity a few years down the line, would everyone just be getting upset about the lack of regulation?

ppod• 5 years ago

The article does not really answer the question in the title. Yes, it shows why they still had the ability to execute Sells. But the question most people have is: If you are forced to halt Buys, isn't it fairest to also halt Sells?

Now, I can see the counterargument: if you halt Sells, you are effectively preventing people from withdrawing their money from Robinhood. But, by allowing Sells (which are being bought by another party somewhere) you likely to influence the price, and you're putting your customers in a strange position relative to clients of other institutions who can still buy, and indeed, buy from Robinhood customers. I still haven't seen this question properly addressed. What are the precedents? When forced to restrict trading because of regulatory obligations in the past, has the normal response been to halt all trading or only one side?

alisonkisk4• 5 years ago

This is actual intersting debate. When the exchange itself halts, they (necessarily, mathematically) halt buts and sells. But there's no correct answer possible for just one brokerage.

So now we go meta and ask "should it be legal to be a brokerage without a much larger cash cushion than current rules? Or should clients be warned about the possibility of freezes like this? Or should buyers take responsibility and not put their money in discount low-quality brokerages if they want to day-trade run hedge-fund style manipulation plays?

All in all, if you hate sleazy hedge funds, you should have any sympathy for day traders and squeezers either, as as they intentionally are playing the same no-holds-barred game, not doing investing as the market system intends.

If you want to hold Melvin accountable by law for alleged misdeeds, it's silly to say the law should require brokers to aid in market manipulation activities against their own solvency interests, instead of the law should require (and enforce) that Melvin do whatever they are doing wrong.

swampthing• 5 years ago

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

tptacek16• 5 years ago

Be careful what you wish for! Levine noted Friday that a huge amount of the trading done in GME was institutional. Large firms can probably handle whatever collateral requirements there will ever be for a specific symbol. Here you have a bunch of random people pushing a $15 stock up to $400. Volatility makes it impossible for Robinhood to keep transacting in that stock. They shut down buys and sells. But trading on GME continues elsewhere; in fact, most GME trading has been occurring elsewhere. Now: the market crashes (as it inevitably must). You got in at $250, cheered as it beat $320, and now the stock is heading back to double digits...

franklampard5• 5 years ago

stock is heading back to double digits

You think

jpambrun• 5 years ago

From understanding the issue is that RH didn't have enough collateral to execute buys. If they restricted sell on RH in the name of symmetry, but other broker with no collateral issue would still allow buy and sell the stock would remain volatile. In this case, not being able to buy is a nuisance, but won't make you loose money directly. Not being able to cash out in the event of a steep decline on the other is directly and highly prejudicial.

I understand that restricting buys affect the price for those who already bought in, but at least they can still cash out..

stevehawk• 5 years ago

i'm not an expert in any of this, but I've heard/read multiple people comment that there is no situation where you're legally allowed to halt sells short of the SEC or market (NYSE/Nasdaq, etc) saying so

Thaxll3• 5 years ago

At that point the stock should have been "frozen", if you disable buy but not sell it means the stock can only go down.

fwsgonzo• 5 years ago

Which should be, and probably is, super duper criminal.

sidibe9• 5 years ago

Did they block buying, or did they block opening new positions (i.e. could shorts still buy to close)? The latter is completely consistent and all this outrage would be unwarranted.

jahlove2• 5 years ago

Would love it if someone would write a detailed article addressing the conspiracy Melvin Capital (and others) not exiting their short position. Melvin Capital says they did, yet the sentiment on virtually all of reddit (not just /r/WSB) is they didn't. I haven't found really anything to support reddit's conclusion.

stu2b5014• 5 years ago

There wouldn't be much to write about. Hedge Funds are not required to disclose their short positions in the US, so no one really knew how many shorts they had and of what kind, and no one knows if they did indeed close them.

Reddit was speculating based on the lack of a reduction in short interest. However, it's hard to determine because a) you don't know how many shorts Melvin had b) you don't know how many new short positions were created that day

totalZero16• 5 years ago

also (c) short interest is not a real-time computation.

nprz2• 5 years ago

Also trying to understand this. According to S3[0] many short positions are still open, but it is unclear if these are the original shorts, or new if new shorts were opened at the higher price point. In other news, Melvin Capital is down 53%[1]

[0]https://twitter.com/ihors3/status/1355246955874701314

[1]https://www.wsj.com/articles/melvin-capital-lost-53-in-janua...

jahlove2• 5 years ago

thanks for the links. I guess I can't understand that S3 chart at all, because it looks to me like the "SI Shares" have dropped precipitously in the last couple days.

cccc4all2• 5 years ago

Melvin Capital claimed they exited all short positions, yet there weren’t any significant change in short %. By all accounts, they had huge percentage of shorts, so them covering shorts should have dropped short % down below 100%.

It sounded too much like a PR move to convince WSB that short squeeze was over. Would Melvin Capital lie about short positions to save $billions of dollars?

Melvin Capital initially claimed their short losses were 30%, now they are claiming short losses over 50%. How are they still losing money on shorts?

Aunche• 5 years ago

I'm just a finance enthusiast, so take what I say with a grain of salt. Now that GME is clearly overvalued, that makes the shorting even more expensive. The borrow fees that Melvin capital owes for their shorts are less than the current ones (iirc ~25% vs ~50%). If you're a hedge fund that wants to make money to short GME, it would make sense to buy the shorts off Melvin rather than the public market. Melvin itself does not have the liquidity to maintain these shorts, but Point 72 and Citadel likely do.

napier2• 5 years ago

It wasn't only Robinhood.

Bad Brokers - Restricted purchasing of certain tickers E-Toro - Proof

E-Trade - Proof

Ally - Proof

Public.com - Proof

Merrill Edge - Proof

IG Broker - Proof

Trade Republic - Proof

Webull - Admitted they were forced to by clearing firm - Clearing firm is Apex - They'll be moved to neutral once they publicly confirm Apex was sole reason the trades were restricted.

Neutral Brokers - Restricted trading, publicly naming their intermediary Freetrade - Proof, blames Barclays - CMO Interview - CMO Tweets M1 Finance - Proof - Blames Apex Clearing Trading212 - Proof - re-enabled, caused by intermediary - Intermediary is IB

Tastyworks - Proof, blame Apex Clearing Stash - Proof, blamex Apex Clearing TD Ameritrade/Canada - Proof - Proof2 - (Margin requirements increased, Covered call and short put orders may only be placed with a broker and support times are > 2h, other trades restricted) - Neutral because they didn't restrict the purchase of stocks with cash.

Source: https://www.reddit.com/r/stocks/comments/l8rhr3/weekend_gme_...

DangerousPie• 5 years ago

You would have thought that article had mentioned that, wouldn't you?

napier2• 5 years ago

It mentions it in passing, at the end, with a spin on the facts. The article glosses over the connections that the brokerage clearing houses have with hedge funds that likely have potentially painful short exposure. It also glosses over the consequences of making shares in certain companies sell order only. It's not a very good or balanced article.

GNU_James• 5 years ago

You all know why but are afraid to say it out loud.

vga805• 5 years ago

I'm guessing they don't like the stock?

snomad• 5 years ago

Similar explanation was posted Jan 28 on twitter by Silent Cal[1]. This article and the twitter thread do paint a very plausible explanation. And is easy to accept.

OTOH, a potentially far more nefarious, yet plausible, underlying motive was posted on /r/wsb today [2] that links GME to counterfeiting shorts.

Given Steve Cohen's numerous scandals through the years as detailed on wikipedia [3], needing to cover up for counterfeiting shorts also seems like a plausible explanation.

I hope the finance committee investigations AOC called for take place and consider both points.

* - Not invested in GME, and prohibited from doing so by my employer. No intention of committing suicide and happy w/life.

[1] https://twitter.com/KralcTrebor/status/1354952686165225478

[2] https://www.reddit.com/r/wallstreetbets/comments/l97ykd/the_...

[3] https://en.wikipedia.org/wiki/Steve_Cohen_(businessman))

franklampard5• 5 years ago

Thanks for sharing. I found it much more logical to believe it is illegal manipulation given history.

kart23• 5 years ago

Is it possible Gamestop is selling back shares that it bought back a couple years ago, and we just don't know because they are only required to report that quarterly? Their outstanding shares used to be above 100 Million, its now around 70.

https://www.fool.com/investing/2019/12/10/gamestop-just-boug...

ww520• 5 years ago

Isn't counterfeiting shorts like counterfeiting money?

itronitron• 5 years ago

http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...

midasuni4• 5 years ago

A lot harder to prove.

ummonk4• 5 years ago

Note that Silent Cal posted an update that the DTCC discretionarily upped collateral required for specific stocks to 100%, and did so without announcing it to the public. https://twitter.com/KralcTrebor/status/1355172567242469377

threedots2• 5 years ago

I read that reddit thread earlier when it was at the top of r/all and it is unhinged.

How this went from vanilla pump and dump to this conspiratorial lunacy is beyond me and I hope it stops when GME comes back down to earth.

Triv8883• 5 years ago

They do business with a company that is involved in the large short position, that is why.

Murkin• 5 years ago

Was the buy limit only for GME or all stocks on RobinHood?

If it's the former, how does the article's explanation fits?

SpicyLemonZest3• 5 years ago

It was for a couple dozen different high volatility stocks.

tgsovlerkhgsel• 5 years ago

Interactive Brokers blocked share purchases too (the article claims they only blocked options), and not just on GME, even for Cash accounts (i.e. no margin involved).

hsaliak• 5 years ago

They failed in communication and lost trust. If their platform could not scale to the needs of their users, they should come out and say it, and should have done so before the fallout.

franklampard5• 5 years ago

These brokers halted buys of GME

Robinhood Webull M1 Finance Public E-Trade

Does any of the above still restrict trading of those stocks, other than Robinhood?

midasuni4• 5 years ago

A lot of noise in the press about how awful this was for people buying in late.

I don’t recall quite as much concern during the last Bitcoin bubble. At least GME is actually worth something($5, $10, whatever)

If people want to play the lotto or burn a billion dollars to send a message, I’m not sure why billionaires would go on cnbc angrily shouting it’s a “way of attacking wealthy people” if they weren’t really angry about something.

bigphishy• 5 years ago

If people want to play the lotto or burn a billion dollars to send a message I’m not sure why billionaires would go on cnbc angrily shouting it’s a “way of attacking wealthy people” if they weren’t really angry about something.

My head hurts trying to read this

midasuni4• 5 years ago

Billionaires aren’t crying when people play the lotto. Or put it all on red. Or spend it on weed.

Why is Leon Cooperman so worried about it ending badly for the general public. That means the rich will make a killing. He wasn’t bothered when things ended badly for the general public at any other time — like 2008.

Even if he was really worried about the general public, why does he think this is attacking the rich?

thefounder7• 5 years ago

This is really about protecting their clients, the hedge funds. Here you have it from the CEO of Interactive Brokers. The retail investors are the product, no the clients.

https://m.youtube.com/watch?v=7RH4XKP55fM

MrMan12• 5 years ago

Just use a broker like fidelity who is not similarly conflicted.

thefounder7• 5 years ago

Yeah, but if there are 4-5 big players and 3 of them ban the purchase of these stocks(not the sale) they can have a big impact on their price..just like U.S sanctions affect Venezuela's econnomy. And then you find out they have a vetted interest to drive the price down...so long with the free market

dcow3• 5 years ago

I mean I get this it's a totally rational explanation of how all the machinery works.

But why did Robinhood start liquidating peoples' shares at a loss (to the holders)? That is literally stealing from the poor to cover their own ass. The bank doesn't sell my house if the housing market gets volatile. What give any broker the authority to execute transactions on my behalf when they're under pressure because of a poorly constructed business strategy?

NovemberWhiskey9• 5 years ago

That would be the margin agreement that you agreed to when you opened your account.

https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Margi...

dcow3• 5 years ago

I don’t have a margin account (or any account anymore on RH) and they did this on cash accounts too.

drocer88• 5 years ago

Robinhood has a conflict of interest. Citadel owns Robinhood. Citadel owns hedge funds that shorted GME. Robinhood blocked purchasing GME.

Something is fishy in all of this.

twic• 5 years ago

Well, i'm glad we finally got a clear explanation of this unexpected but thoroughly non-conspiratorial series of events from checks notes the guy who runs the Super Smash Brothers stats database.

cccc4all2• 5 years ago

Robinhood is done as trading company. After this fiasco, who in their right mind can trust Robinhood for financial future.

The cofounder stated in every interview that it was not a liquidity issue. The actual company stated reasons are still very cagey and ambiguous.

There are all these third parties coming out with shill articles, trying to excuse Robinhood. This is classic propaganda PR campaign.

Robinhood can’t explicitly state what they did for specific reason, because everyone can analyze whether it’s true or not. What is being attempted is to run third party propaganda PR campaign to excuse Robinhood.

Has Robinhood explicitly stated the exact reasons for shutting down buying but allowing selling stocks? If not then why not? Unless Robinhood comes out with detailed legal and business justifications, all these shill excuses are just vapor.

MrMan12• 5 years ago

Robin Hood in my opinion is constrained by their previous marketing. There message to prospective users is at odds with reality. At some point this had to catch up with them. Stop worrying about this one crappy broker.

jMyles• 5 years ago

Setting aside blame and the speculation about whether this was or wasn't intentional manipulation, there's another thing that gives me pause:

All of the offered explanations describe scenarios which are not possible in a decentralized financial toolchain.

DSingularity2• 5 years ago

Is it possible that collateral requirements were raised by clearing houses specifically to knock Robinhood retail investors out of the game?

syntaxing2• 5 years ago

Admittedly I know nothing about the stock market but when your decision somehow align with your business decisions and business partners interests, it’s hard not for people to expect there’s a more nefarious reason behind it.

rsynnott3• 5 years ago

Let's say some subreddit convinces a whole town that it would be a good idea to turn on all their water taps, and leave them on, at the same time. And, as the reservoir drains dry and the sewage lines start overflowing, the water company cuts supply. And then it turns out that the water company has some vague amorphous relationship with a bottled water company. Do you assume that the water company shut off supply because everyone did something weird and the system was about to stop working, or that they did it to benefit the bottled water company?

Like, at some point, "this entity was forced into a position where they had to do the thing, but the thing might have benefited someone they're connected to, therefore they must have done it intentionally for reasons of collusion" looks like a pretty flimsy explanation.

syntaxing2• 5 years ago

While I understand the sentiment of your analogy, I think a big part that’s missing in your analogy is that the water bottle company loses a ton of money (if not bankrupt) if everyone keeps their water taps on and they gain a ton of money if they turn it off which changes the story completely. If I am the water company, and it’s in the water bottle interests, what stops the water company from simple saying “oh we have sewage issues” while the water bottle company rakes in the dough.

What I don’t get is why Robinhood didn’t outright explain this at first. It seems like it’s a good excuse and they announced it right after the media suggested this was the possibility.

abfan1127• 5 years ago

How do high frequency traders operate in these conditions? Do they use margin? Is it not as capital intensive because they tend to buy AND sell so much?

dubcanada• 5 years ago

They don't use Robinhood. Like the article say there is companies that are 50 years old with barrels of money.

vinay427• 5 years ago

To be fair, Interactive Brokers also halted these transactions, and they're well-known for catering to hobbyist and professional traders. Granted, they're more mainstream than dedicated day-trading brokerages, but some of those depended on clearing houses that also decided to halt sales.

xwdv• 5 years ago

Rather than disabling the buy button they should have had a popup appear that explains the situation as simply as possible so that people wouldn't resort to conspiracy theories as an explanation.

Instead they made the UX look evil as hell. Like locking a user in a room with nothing but a loaded gun.

ummonk4• 5 years ago

This is misinformation. The DTCC used their discretionary powers to jack up the collateral requirements on certain specific stocks to 100%, well above what was required by the VaR formula.

For a description of this see e.g. https://twitter.com/KralcTrebor/status/1355172567242469377

crorella• 5 years ago

Because they wanted the price to go down

tehjoker• 5 years ago

Okay, but why stop buys instead of freezing buys and sells?

lxe• 5 years ago

It is not about margin accounts
Brokers cannot use client money to satisfy their clearing fund obligation.

Let's assume there's no margin, and everyone fronts cash for their trades. There's no reason that Robinhood or other broker would not use client money for clearing... that's the point of a broker.

danman114• 5 years ago

Any thoughts/comments on the “convenient” timing?

I’m not writing a lot here, first post! Hi! :)

One thing I didn’t see mentioned here yet, and what makes look suspicious in my eyes, is the timing.

It seemed to me, and I saw this charted in some places afterwards (sorry, don’t have proper sources right now), that the disabling of the options on MULTIPLE brokerages happens almost exactly at the same time a heavy ladder attack was started which dropped the price significantly from - maybe 300-ish? to 120-ish in minutes.

It looked like stop losses should get triggered and the whole market brought to the bottom without the smaller investors a) being able to buy the dip and b) being able to rally the price by buying back thusly.

All the reasons given for the disabling and more might apply, but still this could have been used through the timing as part of a multiple pronged attack, seemingly also coordinated with bots flooding wsb with disheartening messages and a DDOS attack on Reddit’s DNS infrastructure, to try and keep individual investors alone with their decisions to either hold or keep their profits and ruin, thus trying to trigger a panic sale.

What, maybe to get out of some kind of squeeze? :)

It was great to see that most people seem to have held on even whilst disconnected from the hivemind for a bit.

lmc• 5 years ago

Any thoughts/comments on the “convenient” timing?

WSB lit a fire, RH had to call the fire department

ekns• 5 years ago

It seems to me that the system has way too many incentives for collusion across the various levels. Even the DTC is just a private corporation apparently?

The incentives make the system, and so should this system be rethought from the ground up to align the incentives so that never again would this kind of stuff happen againÖ

See: https://old.reddit.com/r/wallstreetbets/comments/l9auf5/impo...

tiku• 5 years ago

The stock system is not really equipped to handle large small volumes I guess?

e-clinton• 5 years ago

What I want to know is why the block buys of GME and AMC when they could’ve blocked purchase of any other high volume stock that wasn’t the vehicle used as part of a class war. Why not block Tesla, Microsoft and Apple purchases?

shrimpx• 5 years ago

Why was buying with personal cash disabled?

_robbywashere• 5 years ago

Regardless of which side of this you’re on. I think it’s pretty weird they didn’t clearly explain why they disabled buy orders. The reason given in the user interface was “volatility”, not much else.

kyrieeschaton• 5 years ago

Simultaenous with pausing buys of GME they were allowing accounts and positions to be opened and margin trades to occur, so it cannot be that they simply needed to limit their capital requirement full stop. The capital requirement is a prerequisite for being in the business and this is not an unforeseen circumstance, it's why they have lines of credit (which in fact they did draw on, just not enough to support the business they purport to be in) on top of their working capital.

uh_uh• 5 years ago

I don't understand this part:

Basically, when you submit a trade on a broker, the exchange of money for stock doesn't actually happen until 2 days later, and the firm that handles that exchange is called a clearing firm. Before then, Robinhood just sends records: John bought 2 GME for $600, Mary sold 1 GME for $290. If that's all that happened that day, then Robinhood would need to provide $310 dollars to the clearing firm, and receive 1 stock.
That's a credit risk - what if Robinhood doesn't have the money on settlement? The clearing firm would be on the hook.

Why would the clearing firm be on the hook? Can't they just refuse to hand the stocks over if Robinhood doesn't have the money to pay for it?

fthd• 5 years ago

what's not being discussed here is that Robinhood became their own clearing broker in 2018. I'm sure at the time of the launch it was celebrated with great fanfare as it would "help the consumer" and add to their bottom line. It's not an evil conspiracy but it's the typical silicon valley grow at all costs mentality. They apparently did not account for the risks of being their own clearing broker and having to put up the deposit to the DTC before settlement. However, they should have realized in this past year that their users have a hive mind and have the same collective behavior (which is also why citadel pays them so much), so when a stock gets popular, everyone will be on the buy side. Other brokers such as webull, were able to reenable trading the following day without limits because they use Apex Clearing which likely has the ability to collateralize the trades and has a more diverse set of trades (buys/sells) that net each other out.

Things they could have done to prevent this, that actually would have been good for the user, but limited growth is: disabled margin trading, reduced account size, use a third party clearing broker.

st0neyeye• 5 years ago

Honestly, I found this article to be of extremely low quality. It really doesn't matter why this thing happened.

Adding a plausible or even reasonable explanation for why it happened only distracts from the fact that it did happen, and retail traders were disadvantaged as a result.

Distractions are not helpful, and can arguably be considered shill activity in some respects by muddying the waters, it also prevents resolution of the real problems. Please don't add to bullshit, there's enough of it on the street after last week.

Any time there are more sellers than buyers the market price will go down, these are simple mechanics, easily modeled to a fair degree of accuracy, everyone in the market knows this, and this loss that played out was tragic because many people were harmed in the process by the brokerage exchanges/clearinghouses actions.

That fact, is what is important and why the people responsible for these decisions should be held to account.

There need be no conspiracy which many people seem to assume based on their posts, the simple fact is people were disadvantaged because the rules were changed on them inequitably and without notice.

If there was collusion, the SEC should investigate and put people in prison for this, not fine them, as to if that will happen we'll need to wait and see.

The fact remains, retail traders were disadvantaged and as any brokerage firm, if they could no longer trade due to trading requirements all trading should have halted on the platform and a blanket notice sent to everyone as to why; this is obvious, has happened in the past, and obviously this didn't happen this time and hedge funds were allowed to close or possibly re-short their inherently risky positions while retail investors could only look on in shock at being unable to do anything with the rug pulled out from under them simply waiting until the restrictions were lifted or sell at a loss.

This, in my opinion was criminal and a major breach of the public trust, as well as fiduciary responsibility. Even if they have it in the user agreement as a legal caveat with vague language, no one consents to someone saying after the fact, we're going to change the rules when the chips are down and allow your money to be stolen, and actually do it, and you hold us harmless or we won't offer the service; and that is exactly what happened.

A take it or leave it ultimatum to get you in the door which allows shady corporate behavior without court oversight, simply based on the fundamental theory that if you agree to a contract you can't go back and sue them for loss but the contracts can be updated at any time after and by simply clicking/using the service you consent is laughable. Lots of issues around this and arbitration abound, I won't get any further into contract law, I'm not an attorney, its not interesting to me.

What's critical is, a very important line was crossed, and by doing what Robinhood and the other firms did, they have effectively doomed their businesses.

It doesn't matter if google has reset their reviews, or facebook bans groups, it hit the news nationally. Most everyone has heard about what happened and while some may not understand the implications immediately a simple fact remains.

A brokerage business cannot operate without trust, and because some of them allowed a conflict of interest, coupled with their own very possible questionable motives and their actions this is the expected and predictable result.

I personally didn't participate in the new-tulip mania because it doesn't meet my risk profile, but I still pulled all my funds from E*trade the moment I heard trades were limited in one direction.

I cannot trust any brokerage that would allow only buys and not sells for the simple reason that this is a clearly rigged market and you can't make money long-term in a rigged market. A casino is a rigged market.

The only possibility in a rigged market is what the house allows you to make, and companies will always do what's in their own best interest, and when the business becomes taking my money as long as they can provide a plausible reason for it that passes legal muster I have no doubt they can and will do that.

I find the claims of accounts of individuals being liquidated at a loss during trade restrictions because they were margin accounts by default and the margin requirements suddenly changed, troubling to say the least.

Investing is not a casino, and by taking the actions these brokers/clearinghouses did to limit trades in only one direction, they have shown that these firms think it is, by their actions.

I refuse to do business with any business that I cannot trust will follow a very basic duty of care and all of these companies have failed in this respect in my eyes.

They also had a fiduciary responsibility to their shareholders which they broke when they decided to allow trades in only one direction because there will be fallout.

I find it most surprising that there haven't been any shareholder lawsuits filed over this because there are plenty of investors in these financial service companies that will take a loss as a result of these decisions.

Mostly because investors that have been watching this attentively who were not involved in the related securities are now moving their money from firms they can no longer trust due to the now-changed risk profile.

There should be almost no reasonable customer to Brokerage/Exchange counter-party risk with 100% backed funds, and this profile seems to have suddenly changed.

Simple fact, this didn't need to happen, but for a complex number of reasons which are mostly immaterial, it was allowed to happen.

If your the type that wants to go into the why's or hows, focus on the root cause, and you need look no further than its because no one was regulating market shorts, and the shorts thought they could harvest investor money from various securities with impunity through sophisticated structured mechanisms to manipulate the price down with plausibly legal structures.

It doesn't matter that it happened because of lax reporting requirements, no regulation, cheap margin/leverage, or a high barrier to countermeasure. It happened.

Everything that happened and continues to happen after is immaterial except to show us what has changed and what investors will now need to do to adjust for that now changed risk profile.

Edit: on a side note, anyone happen to know why the YC edit/update function isn't working? It claims to update the post but isn't actually working; I had to delete the post and repost to have it actually update for some minor spelling and grammatical corrections and to better clarify specific wording to be less vague.

baryphonic2• 5 years ago

This is well-reasoned and decently thorough.

However, when Robinhood et al halted only buys but not sells, they opened themselves up to the "corrupt elite" interpretation that Wall Street manipulated the market. There's almost no question that the effects of the unidirectional freeze were to drive down the price, thereby helping the shorts. Sure, Robinhood would have been not as well off as they were when they did allow sells, but they'd at least not be directly contributing to manipulation.

Further, the article indicates DTCC increased deposit requirements. What is their procedure for making this decision? Are they rule/process-based or discretionary?

I ask because DRCC seems like a singular bottleneck in this system, a single point of failure. It's a bit odd to see the argument that it's not a "conspiracy" (though I'd prefer "corrupt collusion") because one organization all parties depend on made a discretionary decision that caused most participants to take an action benefitting the people most likely to be well-connected to said organization.

It remains to be seen whether facts bear out any of these hypotheses. Facts do bear out that Robinhood lied about their cash flow situation. But I do find it peculiar that we're getting this explanation three days after the fact. "Government rules require vastly increased deposits due to the unprecedented conditions yada yada yada" would have been a better message than the BS they did end up sending out, and it's a perfect excuse to pass the buck.

mikob• 5 years ago

Also, if cash were the issue, why limit only “meme stocks” why not limit stock buying across the board to prevent manipulation?

baryphonic2• 5 years ago

Exactly.

My post has a score of zero, yet zero comments explaining why I'm wrong. I expect better from self-described "hackers."

mlthoughts2018• 5 years ago

The article is completely wrong. Robinhood did not disable buys only, they disabled any trades that took a net new position. Existing options holders who needed to buy or sell were allowed to, and regular retail traders could also buy or sell on the other side of those transactions, because they went to closing existing open positions.

The reason you couldn’t buy but you could sell is just the simple mechanics of a short squeeze. All the net open positions were short sellers needing to buy (e.g. needing retail investors to sell) and there was just near zero volume of call options holders looking to sell (e.g. needing retail investors to buy) to close an existing position.

I feel pretty upset to see the article going into all these details of capitalization - that 100% was not the issue and at no point did Robinhood “disable buys but not sells.” They disabled creating net new positions which just happened to have a side-effect of disabling buys as a matter of the particular trading volume of various option types. If you were a call option holder, you could sell (and therefore the other party could buy).

jcaldas• 5 years ago

As you can see, buys make this worse, sells make it better. Robinhood could not execute buys, because it would increase the deposits they'd need, which they legally must obligate by. Sells, on the other hand, do not have this problem. They would not push the 95% boundary more to the right.

I have been trying to analyze this Robinhood story in an unbiased and objective way. My motivation is that I am interested in contemporary history and believe that what we witnessed in these past few days is a historical event.

I have a question to those here who are knowledgeable about finance and law (I am certainly not).

If my stock trading app stops allowing buying a stock, while still allowing selling a stock, even if this is done purely for technical reasons (see quote at beginning of this comment), am I incurring in market manipulation? To me the answer is evidently yes, but I would like to hear other opinions.

jVinc• 5 years ago

So, Robinhood legally could not submit trades on $GME until they could muster the deposits for GME that they needed

This seems ad odds with what the Robinhood CEO said in interviews which was that Robinhood did not have any legal obstacles but acted preemptively to avoid future issues. I think the distinction is important, as both lawsuits and potential investigations into market manipulation and fraud will hinge on this point. Especially since it seems certain hedge funds "in the know" seemed to reload shorts before the action that was taken, so while Robinhood might have queued up for this action expecting the they might run into legal requirements, they however decided to instead pull the trigger themselve, potentially because acting in good faith they would not run into a legal requirement, which would have left people holding a huge bag on top of their existing losses, potentially bankrupting a couple of major players and likely killing robinhood as well.

praeter• 5 years ago

Sure, it's a great explanation, but it's also straight from the shorting playbook:

http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...

"Pulling margin from long customers — The clearinghouses and broker dealers who finance margin accounts will suddenly pull all long margin availability, citing very transparent reasons for the abrupt change in lending policy. This causes a flood of margin selling, which further drives the stock price down and gets the shorts the cheap long shares that they need to cover. (Click here for more on Pulling Margin)."

http://counterfeitingstock.com/CS2.0/CS8PullingMargin.html

anonu• 5 years ago

Sells, on the other hand, do not have this problem. They would not push the 95% boundary more to the right.

This is misleading in the article. The margin requirements have to do with VaR or value at risk, which has to do with the historical price returns of specific stocks.

If a particular broker doesn't allow buying, in theory it shouldn't be directly related to the VaR.

Case in point. RH severely restricted buying and GME stayed at lofty levels...

Emanation• 5 years ago

Author has no explanation for the formula and the esoteric quote provided.

ineedasername2• 5 years ago

If Robinhood wants to play in this game they need to have deep enough pockets to cover unanticipated events. "We can't both pay our bills and provide you with service at the same time" isn't a great sales pitch.

So the record we have right now is that Robinhood can't keep their servers running on high volatility days (see early 2020) and they can't cover their collateral obligations on high volatility stocks, basically the exact times that people will want to be using their service.

known• 5 years ago

Failure of REGULATOR;

"If it moves tax it. If it keeps moving regulate it. And if it stops moving subsidize it" --Ronald Reagan (b. 1911)

_trampeltier• 5 years ago

If so, shouldn't they not stopped to buy ALL stockes, if that would be the case?

tacocataco• 5 years ago

Don't forget to re-rate Robinhoods app. Mine got deleted.

Sorry if this is off topic, reading this story reminded me to check my review.

EricE• 5 years ago

Makes sense. Too bad their CEO didn't make the same arguments when he was giving all those interviews :p

powerandr• 5 years ago

From the conversation in CH: Elon Musk: OK, you had to restrict buying. Why didn’t you also restrict selling? Vlad Tenev: The fact of the matter is, people get really pissed off if they’re holding stock and they want to sell it and they can’t. So I think that’s that’s categorically worse.

Read full transcript: https://www.mrhack.io/blog/elon-musk-vlad-tenev-robinhood-ce...

Why Robinhood disabled buys but not sells

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