Citadel bailed out Melvin Capital. Not its position. Melvin doesn't have a short position anymore.
Melvin made a stupid bet. Citadel bailed them out. Private sector bailouts aren't free: Citadel got its pound of flesh. Even if they bought the entire portfolio, that portfolio no longer includes GameStop shorts.
If Citadel's asset management and market making arms are colluding, that is illegal. But it's the most complicated and stupid explanation of the bunch. Market makers stop quoting for all kinds of reasons. If I were still on my options market making desk, I'd be pulling the plug on this. My traders would yell at me. This is what you make money on in market making! But the risks of loss go up with volatility, and the costs of gamma getting away can be nasty.
The chances that a fund the size of Citadel has any strong opinion on the direction of GameStop stock is vanishingly low. The chances that they stopped quoting in the name, as did almost every other market maker, and thereby broke Robinhood's system, which doesn't--to my knowledge--directly interface with exchanges to any significant degree, is high.
Source? If I was caught in a short squeeze, this is exactly the kind of announcement I would circulate to prevent the price from going any higher.
Citadel probably gave them the cash to avoid a margin call, knowing they can later manipulate the market and the shorts would payoff in the end, and Citadel would get their share of the spoils.
Otherwise a bailout makes no economical sense, Citadel is not the FED, they can't print money just to cover someone elses losses.
What? No it wouldn't.
Melvin faced cash calls. To raise cash fast they could (a) get it from their LPs (fat chance), (b) raise it from someone else or (c) sell other assets. The last option is a fire sale. You figure out what the fire sale discount would be, say it's 50%, and then use that to get (b).
I don't know what the terms of the bailout were. If I were structuring, I'd make it a loan with a super-high interest rate triply collateralized by their remaining assets. If they pay it back, I get the super high interest rate. If they default, I get the rest of their assets for 33¢ on the dollar. Between those two, the latter is frankly the higher-payoff scenario. (I would also require all short positions be closed out within N days, with the borrower's investors bearing the losses.)
That's what I was pointing out! Melvin did not close their shorts(as they said they did), they just got more rope from Citadel, and Citadel was willing to do just that knowing they can manipulate the market.
The narative of Melvin was "Citadel gave us 3 billion dollars, we closed our shorts at a loss, you won wsb, aren't you happy, you won, now leave us alone and stop buying".
Yes. Those other assets are presumably uncorrelated to this short position. If they were fire sold, depending on the assets, they could have gotten 20¢ or 30¢ on the dollar.
That discount gives Melvin the incentive to borrow, even at exorbitant rates. It protects the rest of the portfolio. With the bailout, the GameStop loss is capped and eaten by LPs. That sucks. But it sucks less than eating that loss and selling off the rest of the portfolio for peanuts.
> Melvin did not close their shorts(as they said they did)
You're alleging securities fraud. This may be the case! But we have zero evidence of it. And if Citadel and Point72 invested $3bn to aid and abet securities fraud, that would be quite stupid.
I stare at this crap all day and I've seen no indicator that Melvin has closed a large percentage of their position, let alone all of it. I will 100 percent allege securities fraud.
"[Melvin] was rescued with a $2.75 billion cash infusion from two other hedge fund titans, Steve Cohen and Ken Griffin. Cohen was Plotkin's former boss at SAC Capital Management. SAC shuttered after the firm pled guilty to insider trading and paid $1.3 billion in fines. Cohen was not personally charged. Griffin runs Citadel LLC ...
In exchange, Citadel and Point72, the successor firm to SAC, own an undisclosed stake in Melvin Capital Management."
And what is the likelyhood Melvin had such a significant proportion of their portfolio in such assets?
@hanklazard best me to it
The answer is they didn't close it, they were trying to get the mob to back off.
And no, it technically wouldn't be fraud, they were very careful with their words...
Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management - WSJ [0]
Read As: Melvin no longer has a short position. Citadel (edit: or like someone else said, a 3rd party) does. Citadel will handle this. Melvin is in time out.
We'll figure out who holds the chips in a few weeks time when filing deadlines are due. Thus it's dark.
Thus explains the perfectly executed short ladder today - could only be pulled off by someone with more dry powder than Melvin - but if you look at the Level II data, this is going to take a long, long time.
[0]https://www.wsj.com/articles/citadel-point72-to-invest-2-75-...
I missed this. What's this referencing?
Yes which could be called the crime of these brokers
That would be securities fraud.
I hope you have a better reason why that's not likely than "but that's illegal." Them actively committing securities fraud seems to be the most likely occurrence from where I'm sitting.
Who would save billions? For how long?
Let's assume the statement is fraudulent. Before the statement was made, Melvin's LPs were set to get hosed. Melvin's general partners, the ones making the statements, have a lot of egg on their faces. But they didn't do anything wrong. They keep their money and houses and yachts. And in all likelihood, after a few months, craft a lessons-learned pitch and raise more money.
After the statement, they have engaged in fraud. Not only is criminal prosecution a risk. All those deep-pocketed LPs can now sue the general partners, personally, for breach of fiduciary duty.
Add to that the Citadel bailout, which removed the risk of the fund going under, and there is no reasonable explanation for lying about closing out the short. If you wanted to show resilience, you'd say something like "we've fully hedged our shorts with long-dated puts, reducing our expected profit but capping our losses."
Selling a stock short is NOT illegal. It is a perfectly valid type of investment according to the SEC:
“D. Are short sales legal? Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.”
Basically – you can’t short sell a stock to manipulate the price down so you can buy a lot more of it later. If you believe a stock is overpriced and short sell it, that is legal. That is exactly what tons of retail traders and hedge funds do every day, including on Gamestop.
On the other hand, manipulating a stock price upwards to cause a short squeeze IS illegal according to the same SEC article:
“Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.”
Unprecedented numbers of people on Reddit, Twitter, and elsewhere collaborated to intentionally create a short squeeze on GME in the last week. No one talked about a fundamental case why Gamestop the company was worth a lot of money and would be successful in the future; instead everyone made the argument that due to a very high short interest of 100%+, that a short squeeze would send the price “to the moon”. That is illegal according to the SEC.
Multiple brokerages, especially Robinhood, probably had their attorneys tell them that “Hey, you are aiding and abetting illegal activity by enabling a short squeeze and could be liable criminally or civilly if you continue to allow this blatant illegal activity on your platform”. So they decided to stop it by only allowing people to close their positions rather than open new ones in support of the short squeeze.
Another strong reason is that if the short squeeze caused the GME stock to go to 5000 in a sudden leap, tons of traders (both retail and professional) could instantly go broke, and then the brokerage (Robinhood) would be left holding the bag. For example, picture a retail investor with a Robinhood account had sold call options in the amount of $100,000 and their account was worth $200,000. If the price gapped from 300 to 5000 and those options were exercised, that trader could have a loss of $10,000,000. He would lose the value of his account, $200,000… but the brokerage would have to make up the rest of the settlement and take a loss of $9,800,000. Now multiply that by thousands of accounts…. no brokerage wants to take the risk of being bankrupted, so they shut it down.
The two strong reasons Robinhood and other brokers stopped trading was to prevent legal liability from enabling illegal activity on their platform, and for wanting to avoid potentially massive banktuptcy from traders unable to cover their losses.
All of this started on Reddit because someone made a case for their fundamentals.
Here is their Reddit account: https://www.reddit.com/user/DeepFuckingValue/
Here is their YouTube account: https://www.youtube.com/c/RoaringKitty/videos
He is considered a legend by all of the people on WSB (of which I am not one) for it and kicked the whole thing off.
My question is.. how does a guy on Reddit and YouTube giving a fundamental analysis of why he valued a stock, and millions of people seeing value and buying it, differ from something akin to Mad Money?
In the last week though, after the massive increase in GME's stock price, the arguments on WSB have all been about the planned short squeeze and gamma squeeze to convince people to hold on or buy more.
You're missing a party in that analysis. For this party, maybe it was a stupid idea for them to try and short sell in a market where the fed had pumped trillions into the economy and market activity, retail and otherwise, is at an unprecedented level of froth. But with that said, they are supposed to be professionals. It seems to be within reason to expect them to be able to hedge against the risk of a bunch of amateurs deciding to protest buy a piece of their childhood against being raided by Wall Street, no?
After all, "irrationally" holding assets that have sentimental value and allocating a large portion of whatever surplus earnings you have to it is a well known American tradition. Whatever the socioeconomic bracket, people have traditionally found ways to support causes and brands that they hold dear. Shouldn't large institutional clients be asking these fund managers why they're poking a beehive right now, and whether it might just be a little unnecessarily risky?
As the price goes up more people started to believe the thesis and piled in. At some point this just becomes momentum training which last I knew was legal.
It seems like you have taken a very narrow and biased view of the law that fits the narrative you like.
Please do not downvote me for calling out strange activity by an account which is also spreading misinformation.
[0]: https://news.ycombinator.com/item?id=25947119
[1]: https://www0.gsb.columbia.edu/faculty/ptetlock/papers/Kelley...
Do you hold any positions related the question at hand? Are you trying to pump & dump the stock?
Meanwhile you're jumping on internet message boards to try and explain how "the man" is actually totally right in this situation and everyone should really go back to dutifully enriching him without questions.
Especially when they're staring at billions of losses and maybe all it takes to save them is a carefully worded public statement that they think they can later argue is technically truthful.
There's no announcement, just a sourced rumor, and no proof they closed their trades when they said they did.
Doing this all in such a publicly-coordinated way on Reddit means you're wide open to people trying to directly play against your goals.
So much of the "proof" of things around this seems to be making big assumptions about who is on the other side that the aggregate numbers don't seem to indicate one way or another.
Lots of people are short? I know at least half a dozen people who bought puts over the last few days. Those puts hedge into shorting the same way calls turn into buying.
I'd say most of the wallstreetbets traders still believe Melvin has their position, but you're saying otherwise. Though the still extremely high short interested doesn't seem to make sense if the big losers already exited...
I do. This will make partners out of a solid suite of securities lawyers around the country. But we won't have clear answers for at least another 6 months.
Also, from what people are saying on WSB, there's no liquidity left in the market which is why some platforms halted trading for $GME.
If the early shorts were all out I wouldn't expect a lack of liquidity, since more recent short positions wouldn't be under as much pressure.
I'm a complete noob, but it seems like literally no one can agree on what's happening and why even though there seem to be valid arguments on all sides.
https://www.reddit.com/r/wallstreetbets/comments/l642ms/upda...
Naked shorts at this scale are gonna have to go away and no one will have more incentive to reach that goal than main street wall street ... ideally they can and should do this in a way that simply involves making more information public ...
Tens of billions of dollars of GameStop have been bought and sold over the past few days. If you can buy GameStop to go long, you can buy it to cover a short.
Note that there isn't a limit on rehypothecation. A share sold short by Bob can be used by Anna to cover her pre-existing short.
Yes, at prices that are several multiples above the price they shorted at.
And I am quite certain that there is no obligation that you have to truthfully tell the world your position in any one security.
So, I’d like someone with legal training to make a case for security fraud.
(It might still be market manipulation or some such).
Naked shorting to drive down the price is also securities fraud. And yet...
I find it exceedingly unlikely that Citadel has no opinion on the value of a stock that could make or break a firm they just lent massive amounts of money to.
It's also very unlikely that Melvin didn't have a short position anymore. I think that was a lie, knowing the SEC fine would be less than what they otherwise would lose. We'll see - maybe. Or maybe TPTB will cover this up.
I didn't touch this in the first place, but once it was clear it was a short squeeze, nope, not gonna play that game. Just sit back and enjoy the show.
This makes no sense, if gme isn't shorted then why then break the law and restrict buying it?
And it does feel like they are restricting buys. Seems unlikely that all the trading platforms that rely on citadel coincidentally decided they wanted to hedge against volatility by restricting user buys.
Untrue, the number of shares short is still 70 million. Nothing changed.
I’ve no dog in this race; just thought I should point that out
how long can citadel and/or other entities hold?
So many people here who have no idea what the hell is going on, and yet are so confident.
1. https://web.archive.org/web/20070228050751/http://www.alphat...
2. https://www.level2stockquotes.com/market-makers-m-list.html
Retail did nothing to Citadel securities.
Even the amount of billions being transferred here are not interesting.
People after the financial crisis liked to talk about fat tails. Risk models assuming narrow tails, reality having a taste for extreme events. This is a fat-tail event. We don't have great models for stocks as volatile and as correlated as GME is right now. Which means for even cash equities trading, we don't have a great sense around what the appropriate spread should be.
Market making has sometimes been described as vacuuming up nickels in front of bulldozers. These are bulldozin' times. You don't want to fill a bunch of sell orders in GME right before it gaps down 80%.
On exchanges. Those are buyers and sellers as well as market makers. Robinhood connects to a subset of the latter.
Nope, pretty much just market makers.
Normally internalizers have no problem competing with spreads on the exchanges, because retail flow is much less toxic than the sophisticated traders in the public venues. But with GME, the retail investors are running the show.
Therefore it no longer makes sense for internalizers to pay for this order flow.
If this is coming from Robin Hood, they could make the (very weak) argument that they are protecting their retail customers from themselves, but if it's coming from Citadel, it just looks like market manipulation to me.
Given that it's not just RH, but nearly all, if not all, brokers that outsource order flow like RH...I think it's safe to assume it wasn't RH decision.
This is a much bigger deal, some (not hedge fund!) people are going to lose a crapton of money on it, and people are probably going to sue them once that happens.
You can see this discussed elsewhere in the thread.
For trying to get some positive media coverage, after being constantly bashed and blamed by them for the uneducated retail trader boom.
That's not at all verified. Short interest is still well over 100% of float. The only thing you are going off is a poorly sourced CNBC report with wishy washy language from Plotkin.
Citadel "bailed out Melvin Capital" because Citadel essentially owns Melvin and so their loss is our loss sort of situation. Melvin Capital stated they had closed out their short position on GameStop, but those are huge losses to cover no one knows how true that is. There is a lot of rumor that Citadel/Melvin Capital re-bought short positions yesterday before Citadel restricted trades to manipulate the market. If this is true it is highly illegal, but this effectively allow Citadel/Melvin to make back their losses if they can force market prices down.
TL/DR, Citadel/Melvin are breaking the law, all the retail traders are getting fucked, but when this is done Citadel/Melvin ends up having more cash than ever.
Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss.
As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price?
Citadel is probably making bank off of this actually, like a lot of other sell-side firms.
Today, there is still a 122% short position on Gamestop. There are still many funds hedged against GME. Melvin might have had one of the larger positions, but there are many more funds with this position. Source: https://finviz.com/quote.ashx?t=GME
As you say, they would make money by running the orders, regardless if GME goes up or down. So - why would they stop? It is most likely that Citadel is still exposed to other funds holding short positions in GME.
There is literally no evidence that Citadel has stopped serving GME orders. That is entirely the conjecture of this thread and ignores the much more likelier option that it was Robinhood that limited the stocks.
Why wouldn't you short GME after the price has risen so high? I'm sure there are plenty of hedge funds shorting now at a much higher price.
Hell, I shorted AMC yesterday and have made quite a bit off of that already.
Because the stock is already over 100% short and an army of retail investors is purchasing it
Because that is also often when it is a good time to make money.
It's entirely unsurprising to me that short pressure on the stock would increase after this.
The risk to a company that processes trades is that many of these retail investors accounts would turn negative and the company that processes the trades would take giant losses they did not plan for. To prevent that, they stop processing trades.
If you have to buy by EOD Friday and the price starts skyrocketing Thursday, you might want to buy a little earlier even if it means eating a huge loss, because you don't know if that skyrocket will continue into the next day.
e: Why is that downvoted?
Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses.
https://www.investopedia.com/ask/answers/05/shortmarginrequi...
Melvin Capital's short position was in the form of puts, I think.
Since they would expire worthless, better to sell them when it is skyrocketing than to wait and see it skyrocket further and lose all of your money.
This is incorrect.
[1]: https://www.institutionalinvestor.com/article/b1q8swwwtgr7nt...
You don't need an "emergency infusion of 3 billion dollars" if you just bought put options that are now deep OTM. As you mentioned, the total downside is capped at 100%.
They clearly had real exposure and serious panic. If they were using put options they were leveraged or had non-standard terms (not the same as typical retail investors)
If it were just puts, then their exposure to a run-up would have been 55 million, not billions. Puts can only go to zero. The filing merely hinted that they were shorting the stock because they also had some puts on it.
Think about it, if you buy a $9 put for $10, the most you could lose is $10 when the stock goes way above $9. The unlimited loss scenario with options is writing (selling) a naked call, where you receive a premium but if the stock price rises above the strike price your loss rises.
Melvin's position must have been mostly short equity. Perhaps only a few million shares of a $3 stock.
But honestly I doubt it was even possible to be short so much with options alone on such a low cap company (as it was before this blew up)
There is no ambiguity in what "closing the position" means. Stating on CNBC that you have closed the position when in fact you only bought shares to cover 1% of your short would put you in jail.
Your mental model for how the world works is wrong.
Is it equally illegal to say on CNBC that you closed it out, but to email your investors and tell them you didn't?
Is the legal issue that you're misleading your investors or that you're manipulating the market? Both?
And despite how it seems from outside Wall Street, hedge funds are definitely scared of the SEC. Banks worry less because their money is sourced differently. Hedge funds have to worry about legal action not just for the fines but also for scaring their investors. When individual investors are so large it only takes a few redemptions to significantly impact AUM.
I am not trying to conspire, genuinely curious.
Source?
Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.
If this is accurate then your question makes sense. Why? But how do we know this is real though? They could play games as well and I'm sure they do. Stock trading is gambling.
Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.
IANAL but I doubt this would be fraud -- they arent a public corporation making statements about themselves. They did have LPs, but i'm not sure what restrictions there are around speaking -- would anyone know?
You wouldnt communicate to your LPs via CNBC or Twitter.
Maybe, the problem was just transferred to someone else so they can remove it from their statements. And now that someone is trying to deal with this. Unless we have trustable source with all the details on how that position has been closed, I don't think it's safe to assume anything.
Sure, there is some risk in liquidity provisioning, but I think you are really not understanding what market makers do and conflating it with hedge funds.
Two points:
1. As I understood it, they closed *A* position, not their whole position, and announced that in the hopes it would deflate the stock price so Melvin doesn't crater.
2. And what, exactly, would be the punishment for this fraud, assuming they even get prosecuted and convicted? Can you put a dollar figure on it? Now put a dollar figure on how much they would lose if they didn't make that announcement, and compare the two numbers.You recall incorrectly. I encourage you to Google before commenting your recollections, it's quite easy to find.
"Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop)," the spokesman said in a statement. [1]
[1] https://www.usnews.com/news/top-news/articles/2021-01-27/hed...
this stinks.
If it's true they refused to process for certain securities for their downstream clients, then I believe "When?" and "Why?", specifically in relation to other actions, become legally relevant questions.
This is something many people are claiming is false. As far as I can find, Melvin have not issues any formal statement on the matter - this claim is purely based on a CNBC "source".
I'll be closing my RH account soon. For now, I'll be holding the line on GME.
Not only hedge funds and brokers colluding against the retail investors, but the government as well. Yeah...sounds about right.
I think there must be laws that say the CEO and the board must get prison terms (preferably life, with no possibility of parole) for these crimes.
No, I will not listen to hogwash like "you shouldn't be responsible for the actions of people you hire". BS. They report to you. Even if they did it on their own, why didn't you reverse it? If you are not responsible for the actions of your employees or contractors, don't hire them. Close down. See if I care.
Like. I understand your point but a lot of people really don't think that is punishment really
These people who are gambling with peoples lives and livelihoods just to get richer need to start going to jail.
Nothing will change until proper punishments are handed out that makes people reconsider being a greedy, selfish, morally reprehensible piece of shit.
The war on drugs sucked, but it was still mostly a war against dealers.
That all said, for all of the negative PR Nixon has received over the years he was a rather progressive and surprisingly egalitarian executive who has been praised by Indian Country Today[2] and appears to have stuck pretty close to his quaker upbringings. I think a lot of people conflate Nixon and Regan - which is pretty ridiculous when you look at the policies those two presidents actually pursued during their terms... And even more folks are getting second hand vibes from Nixon's infamous presidential debate[3] which pitted a rather uncharismatic man against JFK and led to a pretty obvious outcome.
1. https://www.vox.com/2016/3/22/11278760/war-on-drugs-racism-n...
2. https://indiancountrytoday.com/archive/barack-obama-and-rich...
3. https://www.youtube.com/watch?v=-9cdRpE4KKc Just FYI - if you've never seen this I'd suggest giving it a go sometime. Given recent politics it's almost fantastical to listen to two folks come into a debate focused on the issues and minimizing the ways they attacked each other.
Hard to laud Nixon in my view, he was pretty clearly a racist man and was the originator of the "welfare queen" rhetoric (and the corresponding cuts in SNAP, etc.).
We can be as cynical as we like about boomers and then going on to be Reagan voters, it doesn't change Nixon and Kissenger's status as unprosecuted war criminals.
I'm not overly familiar with Quaker orthodoxy, I'd be surprised if dropping bombs killing 500k Cambodians is consistent with it. Nixon wasn't all bad because no human is, even he who must not be named was kind to (some) children, we're told.
Not all bad can still be utterly horrific.
I just don't think it is accurate to say that people are getting super long sentences for possession anymore and I don't think it is right to use that as justification for longer sentences for other people.
#2: I completely agree.
three strikes laws still exist, it is still possible to push possession into felony territory. if there's a gun anywhere near the arrest you can probably tack on firearms charges, etc.
if you're reasonably white and middle class those extras will be ignored for a lighter sentence. if you're black or for whatever other reason they just don't like you then they'll tack those extras on and three strikes you.
there is a lot of "prosecutorial discretion" still, and if you dig into it hard enough that's a code word for racially biased prosecution. the fact that they we reasonable with you or your college buddies who got busted with some MDMA or something is not the same experience that lower income black people get.
Because nothing ever happens to the rich when all you do is take a bit of their money away. They have so much that they will get it back merely for being wealthy, and as we just saw with the recent pardons, they won't even serve their entire sentence even when they're stealing the life savings of hundreds.
Fines can mean something, if scaled correctly:
If I had a billion dollars and could get 2 billion dollars but I'd go to jail for 5 years, I would absolutely NOT do that thing.
Your objection doesn't even make sense.
Here's my perspective.
I spent my childhood around kids from broken families, most of whom had parents in prison on long sentences for nonviolent drug charges. I saw lots of my friends lose their houses in the 00s. I entered a job market that treats just about everyone as disposable; unworthy of training, investment, benefits, time off, bathroom breaks, ppe, or a livable wage.
Wall sts focus on the short term has been like napalm on these issues and made fixing them political suicide. I don't say this lightly; wall st has enslaved America for profit.
>The Top 1% of Americans Have Taken $50 Trillion From the Bottom 90% [1]
The proletariat is showing their heads and nipping at the ankles of everyone. Some are misguided, but beating a hedge fund at their own game, trying to convince boomers that black lives matter enough to not be executed by police, or Medicare for All or forgiving student loan debt are all extremely well studied solutions to systemic issues in America that will not be meaningfully addressed until the root problems are addressed: money in politics, racism, trickle down economics, class inequality, asset inflation, health care, employee rights, war on drugs, etc, etc, etc.
This specific incident was a fluke of luck that required ridiculously overpaid bros in cushy hedge fund jobs to count past 100% while shorting gme/nok/AMC which is playing with the lives and livelihood of the people that work in each of those companies. Needless to say, but watching billionaires repeat '08 with gamestop, amc, and Nokia ruffled a lot of feathers. Gme especially brought out some whales with money to burn in the chase of infinite gains.
Maybe this was an elaborate psyop to manipulate people into doing things they wouldn't. If so, great job, if not, well maybe the fat cats on wall st and in Congress should come around my hood and experience the hopelessness for themselves, that's an open invitation for as long as this account is active for any billionaires or US politicians not already arguing against the same issues I am to come and walk in my shoes.
Hopefully this incident spurs some change in wall st and the culture there. Congress certainly doesn't have the courage to.
[0] http://www.darklyrics.com/lyrics/bloodforblood/outlawanthems... [1] https://time.com/5888024/50-trillion-income-inequality-ameri...
They sure made it sound like it was their choice. https://blog.robinhood.com/news/2021/1/28/keeping-customers-...
The question I have is, can this be prosecuted criminally and can those in charge be threatened with actual jail time from this?
Even if there had been some kind of illegal collusion, it doesn't seem likely that stopping trading would have helped Melvin to cover their short position, which they ended up doing.
There is probably no conspiracy here.
It's not really a bet when they're 50% certain they can get away with no fine, 99% certain the SEC fine will be < 10% of the profit, and 100% certain the fine won't be > 100% of the profit.
This would be front running and is fundamentally not how citadel or other MM function.
So, more or less as described, but the order is a little different, right?
What Citadel and others are doing is they are saying to RH "your order flow is uncorrelated and we'd like to make markets for it, we will charge your users slightly lower bid-ask spread (price improvement for user) and we will also give you a slice of the bid-ask spread we do collect, in return the uncorrelated nature of the orders will ensure that we won't have to do much trades in order to maintain a neutral position."
This proposition is actually good for
1. RH users (they get price improvement relative to NBBO)
2. RH (they get to make money and get a user base)
3. Participating market makers (they get much steadier cash flow from MM activity).
It is bad for
1. Big institutions, they get to pay larger spread than they would if the market was more diluted by retails
2. Non-participating MM (they increase the bid-ask spread to make sure it's still worth their time but there is more volatility and it's a competitive market so mis-pricing the spread is a real problem).
Also, current GME shenanigans are net good for MM since MM is a business that makes money on volume, not direction.
I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated. What they're paying for is order flow from unsophisticated investors; they don't want to deal with hedge funds and the games they play. Maybe these trades are close enough to something a hedge fund would do, so the orders aren't worth it?
There is nothing but the market makers.
> I assumed Citadel would actually be cleaning up market making GME with all the trading and volatility, but maybe the trades are too coordinated
I suspect they are still making bank. The demand for liquidity has increased, so there is a higher premium on liquidity provision.
Any evidence on this? RH said the opposite:
>To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We’re beginning to open up trading for some of these securities in a responsible manner.
IMHO, I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble. Let them be responsible for their dumb actions (hedge and retail alike). If someone is 'too big to fail' then they are 'too big to exist'.
Gambling isn't even legal in most states. Good luck arguing that.
What States are you not allowed to short or long? Using your logic, this is cognitive dissonance. How free people spend their money is an act of speech, PACs and SuperPACs are emboldened by this current legal fact.
Maybe you need explicit help to understand my position. If hedge funds can short/long stocks, there should be nothing preventing a retail investor from doing the same.
As for it being speech, well, corporations are people and PAC/SuperPAC political donations (read: blackbox donations) are speech. These are current USA facts.
From there, I extrapolate that it would be unfair to regulate Main Street instead of Wall Street. This wouldn't be such a massive problem if Wall Street wasn't allowed so much leverage (and short 140% of the company shares...how is that even legal. That's literally fraud). I can't sell you 100% of my property and then sell 40% to someone else.
It's that simple, stop obstructing discourse.
It makes a perfect kind of sense. Nonsense.
To clarify: you will never pay more than market price (i.e. you will never have to pay more than the best order sitting on the book). Citadel or whoever will only internalize your order if they're willing to offer you a better price than market price. Otherwise RH is obligated to match your order with the best price currently available.
They are willing to do this because they would prefer not to leave orders sitting on the books, and there's a fee for taking orders off the books which they would prefer not to pay.
Most clearing firms aren’t clearing GME or AMC anymore. It’s not just RH.
the best financial advice I ever got was to never ignore conflicts of interest.
Plus time in prison.
Robinhood doesn't actually execute any trades. They sell user's trade orders to Citadel, a trade executor. Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup. It's how Robinhood offers trades for $0 fees. You pay pennies more per share, but don't have to spend $5 per trade.
Citadel, and other trade executors, are refusing to buy shares for retail traders. Coincidentally, Citadel also bailed out Melvin fund for their short position in GME. So, Citadel has an interest in not letting the price go up any further. And citadel controls trade execution for dozens of firms.
This is definitely illegal. But Citadel is betting that the resulting SEC fines from this illegal manipulation will be less than the loss they would get if they didn't suppress the price.