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Re:Class Action Lawsuit Filed Against Robinhood by whitepaint on Thursday January 28, 2021 @03:13PM (#25948358)
Can someone, who has expertise in this field, explain what the hell happened? How on earth is it possible that all brokers at the same time disallowed to buy certain stocks? Who is responsible for this? The SEC, the FED, the White House, or..? Who gave the call? Who has that much power?
Re:Class Action Lawsuit Filed Against Robinhood by saddlerustle on Thursday January 28, 2021 @03:51PM (#25949008)
There's three phases of a trade: execution (handled by a broker), clearing (sometimes handled by the broker, otherwise handled by clearing firms like apex clearing or jp morgan clearing among others) and settlement (almost always DTC for US equities).

Clearing and settlement involve counterparty risk - if a brokerage can't hand over the money come settlement, the settlement firm may be on the hook. The risk of this is proportional to volatility. Due to high volatility, DTC increased its settlement costs. This isn't usually a big deal to a clearing firm or a brokerage because retail brokers don't usually have huge exposure to a single equity.

My bet is with the entire world suddenly memed into buying GME, settlement for retail brokers suddenly became very expensive and there wasn't an existing mechanism to pass on this cost down the chain, so halting orders was the only option on short notice.

Re:Class Action Lawsuit Filed Against Robinhood by beezle on Thursday January 28, 2021 @04:01PM (#25949142)
I said on another comment, brokers should have been raising margin reqs on these stocks the past few weeks as it became obvious this was a volatility nightmare in the making. That would have given them increased protection and dampened the enthusiasm.

Also, I don't think any of these people crying foul consider that those who short stocks do so at constant peril of forced close outs because shares are no longer available to be borrowed. The notice involved can be minutes to hours.

Re:Class Action Lawsuit Filed Against Robinhood by wonderwonder on Thursday January 28, 2021 @04:10PM (#25949249)
Who was actually buying the shares once retail buys were halted? Was it the short hedge funds? If so, then was this not a conspiracy to allow them to cover their shorts and initiate new ones knowing the price was going to be artificially forced to lower?
Re:Class Action Lawsuit Filed Against Robinhood by etcet on Thursday January 28, 2021 @04:13PM (#25949296)
Due to the selling frenzy, GME is more volatile than ever but Robinhood is now allowing buys, so what has changed between this morning and now? It seems like the counterparty risk would be even higher than this morning?
Re:Class Action Lawsuit Filed Against Robinhood by saddlerustle on Thursday January 28, 2021 @04:22PM (#25949442)
I'm guessing with politicians starting to take advantage of the outrage, someone in the chain decided it's better to eat the cost.
Re:Class Action Lawsuit Filed Against Robinhood by lamontcg on Thursday January 28, 2021 @03:42PM (#25948880)
The problem is that if big short sellers like Melvin Capital go under that their counterparties are the brokers that will be ultimately holding most of the bag.

This is what I couldn't understand about what the endgame of this would have to be. Because you can't really have a situation where all the shares are bought up sending the shares to infinity. At some point something breaks. Someone has to pay money for those shares.

That could be that retail investors bolt for the door just like a bubble popping and because its difficult to maintain steadiness when you're looking at huge gains that aren't realized. And that is what they thought would happen.

What would be more reasonable would be to liquidate Melvin Capital and anyone stupid enough to invest in them and the holders of GME shares would become creditors against that bankruptcy proceeding somehow. SEC would have to manage that unwinding somehow.

But the problem is that the clearinghouses like Citadel are counterparties to Melvin Capital and they've privately bailed them out, taken over their shorts and will now hugely profit by suspending trading and riding those short positions down. This now entirely makes sense to me as what was inevitable, because while WSB was trying to destroy Melvin Capital they didn't understand that the implications of that were going to be destroying the clearinghouses through counterparty risk. And they were never going to let that happen, so they shut it all down and will eat the SEC investigation.

This is a very interesting outcome just due to the moral hazard it creates with shorting.

It is also a very interesting outcome because a lot of "little guys" just learned an object lesson in what happens when it looks like you are beating the "big guys". They won't let that happen. There's going to be a lot of political rage as a result of this. We're going to have to make a decision in the next 10 years or so if we'd like to funnel that rage towards socialism or fascism, the status quo is going to continue to enrage people.

Re:Class Action Lawsuit Filed Against Robinhood by Armisael16 on Thursday January 28, 2021 @03:31PM (#25948665)
Most of the zero-commission brokerages sell their order flow to market makers. Those companies just decided they didn’t like what the retail investors were doing and stopped accepting buy orders on those stocks.
Re:Class Action Lawsuit Filed Against Robinhood by theshrike79 on Thursday January 28, 2021 @03:28PM (#25948597)
People started losing money, LOTS of money. Phone calls were made and they reached the decision to shut down trading everywhere they could.

We'll see how it worked in the coming weeks.

Re:Class Action Lawsuit Filed Against Robinhood by psychlops on Thursday January 28, 2021 @03:29PM (#25948635)
They didn't. It was TD, Interactive Brokers, and Robinhood. Maybe more by now, but they acted alone.

My guess is that market makers that these brokers sell orders to said no. Brokers make a lot of money selling retail orders to someone else.

Re:Class Action Lawsuit Filed Against Robinhood by sakopov on Thursday January 28, 2021 @03:48PM (#25948967)
It's anecdotal but ETrade, TD, Ally Financial all started blocking buy orders at seemingly the same time - yesterday morning shortly after market open. The reason I know this is because I was on the phone with a friend at 9am Central and neither him nor I were able to purchase $GME, $BB or $GMC (he's on Ally and I'm on Etrade). Around the same time I started seeing messages on social media that TD was also blocking traders. I think you're right that the order likely came from MMs and everyone followed through.
Re:Class Action Lawsuit Filed Against Robinhood by Avalaxy on Thursday January 28, 2021 @05:27PM (#25950345)
Trading212 was also halting trading.
Re:Class Action Lawsuit Filed Against Robinhood by equality_1138 on Thursday January 28, 2021 @04:01PM (#25949138)
My take is that the stock was basically being manipulated by an angry mob. While I completely applaud their efforts and stand against the unfair advantage that institutional investors have, I can also see where their approach could trigger broader market instability. Let's assume it was a broad coalition that assessed the risk and decided extraordinary measures were in the public's interest.
Re:Class Action Lawsuit Filed Against Robinhood by xeonoex on Thursday January 28, 2021 @04:11PM (#25949261)
"Manipulated by an angry mob" is one way to look at it, but "unsophisticated investors attempting to short squeeze billion dollar hedge funds" is another.
Re:Class Action Lawsuit Filed Against Robinhood by equality_1138 on Friday January 29, 2021 @05:16AM (#25955841)
Either way, there is a limit to how much unsophistication the market can tolerate and remain healthy.
Re:Class Action Lawsuit Filed Against Robinhood by wonderwonder on Thursday January 28, 2021 @04:08PM (#25949219)
Citadel
Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @03:18PM (#25948425)
In all likelihood the internal teams responsible for risk management and compliance all determined that this was likely criminal activity, and recommended trading restrictions until the SEC weighs in. Brokerages are typically over-cautious about this sort of thing because they do not want to invite additional scrutiny from the powers that be. The brokerages probably did not communicate these decisions to each other, they just all use similar logic and all arrived at similar conclusions. Those that did not make this decision probably did not observe suspicious trading patterns from their customers.
Re:Class Action Lawsuit Filed Against Robinhood by paxys on Thursday January 28, 2021 @03:22PM (#25948490)
There is zero chance they all independently came to the same conclusion at the exact same time. There has to be a bare minimum amount of coordination involved, which is likely illegal. Either that or they got an order from the SEC/White House.
Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @03:35PM (#25948738)
Financial companies all use the same logic to make these sorts of decisions, so yes, there is a very good chance that they independently came to the same conclusion at the same time.
Re:Class Action Lawsuit Filed Against Robinhood by mlthoughts2018 on Thursday January 28, 2021 @03:28PM (#25948610)
It’s also not a clear conclusion even remotely at all. There’s nothing remotely illegal about retail investors coordinating together to profit from a short squeeze opportunity.
Re:Class Action Lawsuit Filed Against Robinhood by wonderwonder on Thursday January 28, 2021 @04:12PM (#25949285)
If they got orders from the SEC they would likely be shouting it from the roof tops by now in a desperate attempt to shore up their reputation.
Re:Class Action Lawsuit Filed Against Robinhood by paxys on Thursday January 28, 2021 @05:29PM (#25950369)
Doesn't have to be an official order
Re:Class Action Lawsuit Filed Against Robinhood by Ericson2314 on Thursday January 28, 2021 @03:23PM (#25948502)
Then they should have blocked all trading, not just buying. The benevolent story just doesn't hold up.
Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @03:30PM (#25948637)
They blocked the opening of new positions. You can still buy if it results in a short position being closed. Pretty typical move, almost certainly done to protect themselves from scrutiny by the SEC and CFPB.
Re:Class Action Lawsuit Filed Against Robinhood by dpbriggs on Thursday January 28, 2021 @03:24PM (#25948527)
Why block buying and not selling?

Why did they all come to the same conclusion at the same time?

Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @03:27PM (#25948576)
They did not block selling, they blocked opening new positions. You can buy if doing so closes a short position.
Re:Class Action Lawsuit Filed Against Robinhood by dpbriggs on Thursday January 28, 2021 @03:32PM (#25948686)
And that's somehow fine?

It's blatant protection for short positions. These brokers are hamming up the "we need to protect retail from volatility" narrative when they're clearly trying their best to stop their business partners from going bust.

It's sickening.

Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @03:45PM (#25948929)
More like they wanted to preempt possible sanctions from the SEC for failing to take action when they observed suspicious behavior by their customers.

Let's be clear about a few things. Brokerages do not care about protecting retail investors, they only protect their customers when forced to do so by regulators. What brokerages do is protect themselves from liability, financial losses, and scrutiny. They have no problem screwing over their customers when it suits them. They will raise margin requirements and force customers to take a loss as soon as their risk models say that they should do so. They will restrict trading whenever it looks like there is a scam, simply because it wards off possible investigations into their business.

What they can get in trouble for, and RH did get a slap on the wrists for already, is working against their customers' interests for the benefit of their business partners. One brokerage I could believe, but I doubt that half a dozen would all do it at the same time and with the same securities.

Re:Class Action Lawsuit Filed Against Robinhood by dpbriggs on Thursday January 28, 2021 @04:10PM (#25949248)
That's great, but they should be halting trade of the stock all together if they really believed retailers were manipulating the stock.

I can see the nice narrative of allowing retailers to sell ("capture gains"), but it's indefensible to only allow selling.

That's _blatant_ market manipulation.

Re:Class Action Lawsuit Filed Against Robinhood by ClumsyPilot on Thursday January 28, 2021 @03:52PM (#25949016)
they respond to 'likely criminal activity' with certain criminal activity?
Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @04:04PM (#25949170)
Nothing criminal about it, brokerages do this all the time.
Re:Class Action Lawsuit Filed Against Robinhood by dpbriggs on Thursday January 28, 2021 @04:14PM (#25949318)
I'm genuinely curious: can you find examples of brokerages only allowing buying, or only allowing selling?

I'm not talking about edge cases with margin calls.

Re:Class Action Lawsuit Filed Against Robinhood by betterunix2 on Thursday January 28, 2021 @04:22PM (#25949437)
Re:Class Action Lawsuit Filed Against Robinhood by dpbriggs on Thursday January 28, 2021 @05:03PM (#25950052)
Keep them coming.

I want other examples where it's appropriate for some brokers to restrict _buying_ but not selling, especially in the context of a short squeeze, with potential conflicts of interest.

I understand that brokers can restrict trade on risky items as yes, it impacts their risk model. I'm failing to find justification for RH and others to restrict buying but not selling of GME.

Your first link is for penny stocks, and the restrictions revolve around the usual pump-and-dump. You're allowed to go long, and can trade between days.

Your second link is for OTC, and I fail to see how this is relevant to GME. GME is traded on formal exchanges, and brokers that haven't arbitrarily restricted buying aren't having any liquidity issues.

Re:Class Action Lawsuit Filed Against Robinhood by justupvoting on Thursday January 28, 2021 @05:03PM (#25950046)
These are examples of specific, ahead-of-time rules for entire types of stocks, not a sudden, reactionary move against particular names.
Re:Class Action Lawsuit Filed Against Robinhood by pfisch on Thursday January 28, 2021 @03:27PM (#25948583)
Except it is still ok to sell these stocks...ok bro...