> Why would robinhood be any more liable than other online traders like Fidelity or etrade?

Every brokerage house ultimately vouches for their clients.

Robinhood has extra exposure because clients could claim its interface induced them to overtrade.

> Robinhood likely routes most of it's trades through citadel

Do we have a source for this?

Also, Citadel just made money bailing out Melvin Capital. The short squeeze let them buy assets at dimes on the dollar. Assets which do not include GameStop shorts.

> which has informed partners it will not be fulfilling GME or AMC or BB trades

Former market maker. When trading got crazy we'd take profits. When it got inexplicable, we'd pull the plug. If we didn't, risk would. In this case, there is the additional factor of political risk--you don't want to be making millions of dollars off GameStop at its peak when that's going to cost you tens of millions of legal fees in front of Congress.

A simple explanation for Robinhood's behavior might be that their customers, the market makers, backed away from paying for this order flow.

All this said, I'd be highly pissed if my broker did this to me. But Robinhood customers have known since the beginning they weren't the customer.

>> Robinhood likely routes most of it's trades through citadel

>Do we have a source for this?

Yes.

https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2...

Citadel Securities is a market maker. Do you have any evidence that Citadel has un-hedged "massive short positions on GME"?

I find it nuts how this has transformed into a populist thing.

If you buy a share of GME from Citadel Securities, that may typically result in an immediate unhedged short position at Citadel, if they weren't already holding it.

Normally, a market maker might then close it by buying a share from someone trying to sell. But in a massively one-way market like GME, it's quite likely that they build up a large enough unhedged massive short position that they say "no, we're not taking on any more risk" and communicate that to Robin Hood.

They immediately hedge it. If the market for GME is "one-way" (it's not, people are shorting), they might also hedge the sale by buying more exotic financial instruments and correlates of the GME price.

> they say "no, we're not taking on any more risk" and communicate that to Robin Hood.

Maybe, although they would probably do that when their ability to hedge started breaking down, not when they'd already acquired massive short positions.

More likely, to me, is that they would just increase the bid-ask price spread continuously as their ability to hedge degrades.

> They immediately hedge it

This assumes continuous liquidity. Dangerous assumption to make in choppy markets.

It is not uncommon for markets to gap up or down discontinuously. You look at the market and see bid 899 at 901, buy some shares for 898, offer them at 890 and find the market is now 125 at 901.

They would have different risk profiles depending on what their clients are actually doing. RH probably has much greater net exposure than Fidelity since they have a greater share of meme investors in their customer base. Fidelity definitely has a less gameified interface as well.

Corporate risk controls are also not a hard science, different risk teams can and do come to different conclusions on the same issue.

Every brokerage house has this problem. If their client goes bankrupt, then the brokerage house has to eat the loss.