Because it is the equivalent of "we literally don't have enough money in the bank to allow you to trade on these". Which will be a very problematic statement for a trade broker. The equivalent of panic if too many people withdraw from a bank.

Few people are actually getting this information. So... its not horrible press for them.

And if they say this. People would sue like MAD. Because it would be "RH didn't have enough money to trade on a thing they allow trading on. Therefore we missed out on potentially 5 million in profits when I was unable to trade ..." and so the lawsuits begin.

Lol, so instead, most of the internet thinks they are colluding with institutional short sellers at hedge funds in order to save them and screw over retail investors. They already had (probably in spam detection right now as they are currently gone) hundreds of thousands of 1 star reviews on the android star and tons of people like me deleting their app.

Oh, and I heard they were supposed to IPO this quarter and I can see this event single handedly completely derailing that with how many users they are going to lose.

> instead, most of the internet thinks they are colluding with institutional short sellers at hedge funds in order to save them and screw over retail investors

Communications were undeniably terrible. That said, I imagine they have a limited number of people on staff with deep clearing knowledge, and those people were preoccupied. Aviate, Navigate, Communicate.

> I imagine they have a limited number of people on staff with deep clearing knowledge

Since you just gave us the basics in like 5 minutes, is it too much to expect that people whose job it literally is know that too? Especially the ones doing communications.

> is it too much to expect that people whose job it literally is know that too?

No, I don't think so. I don't know when they drew on these lines of credit. Maybe that was still up in the air when the first announcement was made. No financial institution wants to say "we ran out of capital" during market hours.

I'm sorry but I absolutely cannot buy this (just like $GME); I see Hanlon's razor weaponized like this constantly and I think we've long passed the point of violating Occam's.

I can accept that they ran out of cash. It's just like a company running out of servers when traffic spiked. On the other hand, moralizing their decision and citing misinformation and user-caring erodes trust.

I can't. They all saw this coming from at least two days before, and they managed to fix this problem with a trading session. Rather than freeze the entire market on GME so no one could buy or sell, institutional traders were free to buy out of their positions while retail accounts were being liquidated in a coordinated fashion across all brokerages.

It's very clear to me that insiders saw the how much hurt this short squeeze would bring the financial markets, and they all coordinated to relieve it. It's no coincidence so many hedge funds started degrossing, futures were down, and the VIX spiked to the moon exactly as $GME's price started accelerating...

...once brokerages bricked buying the VIX collapsed and markets rose.

Infinity squeeze averted and all's well in Wall Street. No big institution is likely at risk anymore and retail traders along with smaller funds will be the bagholders.

Who is “they”? Unless I’m very much mistaken, Robinhood has no institutional clients. The institutional clients as well as the more serious retail clients were unaffected.

It would be quite odd to halt trading on a stock market-wide because a small number of brokers run out of collateral.

Stop being "less smart". Robinhood's clients are/is a hedge fund manager, Citadel Securities - Robinhood’s largest customer, which tried to bail out Melvin Capital which got bankrupted in the short squeeze on GME. Unless you've lived under a rock you should know by now how Robinhood is making the money.

Unless you’re paying for trades you’re routed to someone buying order flow. E*TRADE, Ameritrade, etc sell order flow for revenue.

IB charges for orders and doesn’t sell order flow but also cut off GME. What’s the theory around that broker?

IB's CEO was interviewed on CNBC, and he actually said that his motivation was to "protect the market" ... specifically large players important to the market, whose solvency was threatened by the short squeeze.

"... we are concerned about the financial viability of intermediaries and the clearing house."

https://streamable.com/tfg1ow

Much better quality but shorter length: https://www.youtube.com/watch?v=7RH4XKP55fM (uploaded by CNBC, so might get deleted someday)

That is really scary. If few of them go under, what happens to the market in terms of liquidity?

A year old, but on point...

https://www.russellclarkim.com/marketviews/russell-clark/201...

> There is no doubt that a default by a clearinghouse member is more likely when initial margins are low and may be caused by a sharp unexpected move in the underlying markets. In the event of a default by one member this could trigger a chain reaction. Firstly, initial margins will rise in an event of a default, which will restrict other trader’s ability to participate in the market possibly acerbating the move in the underlying markets. Secondly, if the defaulting member was a particularly large player in one asset (likely, as this would be the cause of the default), the members with opposite positions may not receive variation margin and hence will become unhedged at the very moment they need hedging. Thirdly, the clearinghouse may well have to recapitalise itself from the surviving members. Major clearinghouse members (including JP Morgan) appear to be seriously worried about a clearinghouse problem after the default by a member of Nasdaq Clearing AB ..."

Be careful out there. :-)

When you put some billionaire guys, some of them happen to be have multiple roles such market makers, brokers, hedge funds that short GME and even the investors in the brokerage platform where GME is traded on one side and some poor retailers on the side side you don't need a big brain to figure out who wins.

Maybe you are not aware but Melvin lost almost 3 billions and was bailed out by Citadel and Point72 and probably they will loose even more and go bankrupt if they don't stop people buying GME.

Do you think these guys want to leave all that cash on the table and play fair? If you look at Point72 owner(Cohen) you see some really "interesting" things.

I could buy GME through ETrade but IB wouldn't allow a buy with cash. The chairman said something about market health but the reason he gave was about margin without using that word.

Cut off how? A quick search suggests that they have increased margin requirements but still allow trading.

They allowed only to "Sell" not buying. Not even with cash (no leverage). Source: Personal experience.

Hopefully wsb goes to war against citadel next

> It's very clear to me that insiders saw the how much hurt this short squeeze would bring the financial markets

Maybe. But if this is a trolly car problem it's clear they made the call to let the train run down the track with the retail investor when it should have been the track that eviscerated Citron and Melvin and all their backers.

Big institutions that made the bad trades should have been the bagholders.

Hmmm. How many companies claim to put users first? And of those how many actually do? Oh right.

I would not put a fintech in charge of said trolley.

Don't quite understand the bricked buying part. Can you explain?

Pretty sure he’s referring to multiple brokerages making it so you could no longer buy certain stocks (GME, AMC, BB, others), only sell.

They restricted buying and selling, except to close existing positions.

Then they should have halted both buy AND sell, just like the NYSE, but they made it sell only instead.

Preventing their users from selling out of a position would be much, much more serious than preventing them from adding to a position. Incomparably so.

Have you not read about the fire they were under a while ago for making it too easy for people to lose money? Making it so people would be stuck in their positions would be insane, way more than their current actions.

They stopped both buying and selling, except to close existing positions.

The stock dropped right after they banned buying. It would have kept going up otherwise.

If that is the case the way it supposed to happen is a directive from regulator body(SEC maybe) should go out saying stop trading of this shares. Lack of regulations and no word on why certain shares are not tradable isn't acceptable and you can't blame people from making their own theories.

There will be a lot of talk about sueing, some of it will result in litigation, and probably a few people will have some of what they thought they had taken from them restored - but none of this will result in RobinHood, or any other company, becoming the frictionless, almost-free trading platform they imagined it was.

> the frictionless, almost-free trading platform they imagined it was

Maybe we all should stop to consider whether free & frictionless are worthwhile aspirations. Ice has a lot less friction than concrete but I certainly don’t want to walk to work on it.

Maybe a little bit of friction in our news, investments, social media, communications, etc. is a good thing. Give our brains a chance to digest information and let the intelligent & cooler minds prevail rather than impulsively smashing the share or downvote button.

The problem is that Wall Street has access to, if not free, practically frictionless trading in comparison to retail investors. If you add more friction to retail investors but not Wall Street it just compounds the problem.

You do realize most hedgefunds lose money and that active trading isnt as effective as just buying and holding shares in index funds. This is Warren Buffets famous bet.

What WH has democratized is now giving retail investors the opportunity to also lose money with active trading.

So let’s do it across the board. Slow everything down to sane levels. Won’t happen but one can dream...

Tech companies do this all the time when the cheap servers they run their businesses on can't handle the traffic.

I find it hard to believe that anybody would find it hard to empathize with the fact that your company failed to predict a wild meme craze leading to an overload of your systems.

Now that its said, it would have made more sense for Robinhood to just nuke its servers and return 500s to their users rather than deal with this whole mess.

I wonder which belief is better for the long term health of Robinhood.

Option 1: The public believes Robinhood is part of the larger finance industry cabal and will screw you over to protect their buddies.

Option 2: The public believes Robinhood is in over its head, it doesn't have the financial backing to do the job they are given, and it can go insolvent at any moment.

Considering the reputation and expectations for the finance industry, it might actually be better if the public believes option 1 even if option 2 is the real story.

I’d imagine option two is much better. I have a hard time blaming anyone for not expecting the chaos that has happened and I expect the PR narrative would go that way. Especially if robinhood had managed to stay on the side of the little guy in the public eye.

As it is, their customers got so pissed at the option one assumed story that they had to put out another post saying it’s option two anyways. Now they probably have the worst of both worlds.

Both can be true. Citadel, the hedge fund that bailed out Melvin Capital (the hedge fund that over shorted GME) is Robin Hood's largest client. So it could be there was incentive for Robin Hood to ban trading on behalf of Citadel and they also don't have money to pay back the trades they make.

If Citadel is a client of Robinhood, then they are are under no obligation to buy Robinhood's product. It's possible that Citadel stopped buying the order flow from Robinhood because they had exposure to clients who in turn had short exposure to the stocks in question. Even in the absence of such an ulterior motive, Citadel is a market maker and it would be foolish for any market maker to do huge amounts of market making on a stock that it's the headlines and is unpredictably skyrocketing. Ultimately Robinhood cannot continue to offer free orders on a stock if Robinhood's clients are not willing to buy a order flow on a specific stock from a specific client because that client's order flow is toxic and making the stock too volatile to make an orderly market in. Declining to accept toxic order flows and withdrawing liquidity from volatile stocks is a reasonable and accepted practice for market makers. Robinhood users pay zero dollars in commissions, and they get what they pay for.

Just so we’re clear, it’s toxic for a big fund to be short squeezed, but not toxic for those big funds to do anything that makes them a profit?

Toxicity is a well-defined technical term in market microstructure literature. It basically means whether the direction someone trades in predicts the short-term direction of the market.

It's not a moral judgement. So to answer your question, hedge fund order flow is considered highly toxic. Which is why Citadel Securities pays to interact with non-toxic retail flow, instead of toxic hedge fund flow.

To understand toxic flow you have to know adverse selection. For example, you are asked to share a pizza with your brother. You are free to split it in half however you like, and your brother gets to pick which half to take. The most fair way is to split it in half otherwise he will select adversely. Market makers job is to quote the true price of an asset by offering to buy and sell at different prices without having one side picked off more than the other. So when adverse selection occurs too often over a period of time, they will simply throw in the towel and fold, regardless of whether their opponent is bluffing or not.

In this specific case, Robinhood often have worse price than NBBO, so they get to do liquidity arbitrage in addition to the less toxic retail orderflow.

Well, TIL... thanks.

Anything that is profitable is good yo. This is a site for making profits above anything else

Michael Burry disagrees with you: https://twitter.com/michaeljburry/status/1355184281367138304

The tweet is deleted, but Google's cache says: "No one mentioning that free trades and shares at #RobinHood were made possible by sales of the trade flow to Citadel and its ilk. Robinhood's customer is and has been CItadel, not its retail traders. Which makes what is happening this week all the more..." (It actually ends in "...".)

Option 2 looks like a huge legal liability - they effectively built a product that doesn't do what it says it does and it cost users real money.

Is that any different than any digital service with its 99.99% uptime? Robinhood will do everything it says it does except for the once in 30 years black swan meme event where 50% of their users try to invest their life savings at once

Option 1 has that same liability, doesn't it?

The manipulation isn't different from insolvency

I'd keep my account if it was 2, but I'm getting rid of it for 1.

If they go insolvent, I still own the things I own, but if they're screwing me over, there's no point in owning thjngs

If a company says they are doing something 'for your own good' you can bet that it is 'for their own good'.

This is based on a lifetime of observations without a single counter example, so it is still anecdata but quite a bit of it.

Healthy, ethical companies will sometimes combine the two. I'm sure that Tim Cook, as a boomer-aged gay man, has a very gut-level understanding of the importance of privacy: he grew up when being beaten up or even lynched for his sexual orientation was normal in his country, and where it was a criminal offense. The fact that the company he's the CEO can leverage "good privacy" to boost their profits makes for a happy combination.

Their ploy is entirely aimed at google.

They fucked up cookie management and pulled the trigger on it early this year, in the middle of a pandemic. specifically around iframes. I got stuck with the ass end of that at my company. We worked in education. There were many healthcare software people that were also pissed about that.

Sure fucked up cookie tracking for adds tho!

They did:

https://blog.robinhood.com/news/2021/1/28/an-update-on-marke...

But the conspiracy theories are more fun, so nobody really paid attention.

That was their second post of the day. Their first post [1] made no mention of liquidity or clearinghouse deposit requirements, but rather framed the decision entirely in terms of "helping" customers deal with volatility.

That post was at best misleading.

[1] https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

The first one looks like a form letter that they had on deck for "we need to stop trading right now" situations and they just plugged in the list of symbols. The second one is the more adequate explanation for when there was time to get actual humans involved.

It was a lie.

Well they sure made selling really easy during the architected dip.

Why allow so many new users to buy those positions before they blocked buys if this was coming? I mean, the prices were elevated before it got to this. Seems like a situation of let's ride the free customer acquisition and figure it out later.

They happily took the huge influx of new users that had no knowledge of this. And many got screwed. They couldn't average down on their position. And a ton of buyers were removed. So the price got out of control. Many panicked because of it.

I'm not on RH but added more at 170 and it came with several partial fills of 1 and 2 stocks. That was RH users getting screwed as a ton of buyers were removed. Trading was not halted on the downward spiral.

They could have said - hey guess what - 750k RH users (whatever it is) that own GME cannot buy this stock, so consider this before you sell. Some kind of warning that passed the attorneys. How could they not see this coming?

Any way it went down - RH is done. I hope they "pivot" into a worse situation.

Correct me if I'm wrong, but that was at the end of the trading day, when people already made it clear their original BS blog post wasn't convincing anyone. IMO Robinhood is clearly in the wrong. It may not be as malignant as the Citadel collusion theory, but they did in fact treat their own customers like idiots. And it backfired.

Not going to defend RH, but I have some insight with regards to corporate communications.

A company in panic fire extuingisher mode has to put out some type of announcement. RH did. Twice in one day. I can believe the first one was a canned response, and the second one looks like a more thoughtful letter.

But have you ever thought how much internal wrangling, or how many draft revisions even such a short piece has to go through? The company has to be very careful in what they say in their comms - plus even more cautious with their phrasing and wording used. These types of comms will be read by arms chair lawyers and real lawyers alike. The latter will look for opportunities.

The former will read it like they were the devil's advocate themselves.

Corporate comms teams have to put in a lot of effort, and go through numerous rapid iterations, to make sure their published material is factually accurate and anodyne. In a crisis situation, even more than usual.

Yeah, you're right. I think this article lacks specifics, but they did mention capital requirements. I was referring to their previous blog entry: https://blog.robinhood.com/news/2021/1/28/keeping-customers-.... In addition, their founder @VLAD on Twitter cited misinformation as a reason.

As for conspiracy, I'd venture to guess that inconsistencies/hypocrisies and opacity turned people into cynics. I'm not saying RH is hypocritical, by the way. Instead, the hypocrisies of other platforms made people trust RH less. For instance, I saw numerous accusations that RH was helping wall street by limiting buying but not selling.

This came out after the market closed, but the limitations were put in place before the market even opened.

Plus, they never give a reason in this. They make vague references to things that could be a reason, but don't clearly state what the reason was. Leaving it unclear like this is horrible PR, and will continue to let the conspiracies spread.

That blog post was much more vague, and harder to understand than the clear explanation two comments above. I can now see that they're obliquely referencing their collateral requirements, but that wouldn't have been clear to me before reading JumpCrisscross's comment. I think g9yuayon's point stands.

That's still very vague.

They had a chance to educate people, but nah can't do that.

There were allegations RH did a large sell-off today of client's margin positions today presumably in order meet collateral requirements. It's possible they realised it'd really not be in their client's interest to telegraph that ahead of time.

Can a broker margin call whenever it wants? I would imagine this is regulated and there are specific circumstances.

Not admitting you're running out of cash might be just reflexive.

Also why would they not send a message out ahead of time if this was the case? Surely they were aware of this potential risk? Completely unacceptable to not inform users ahead of time.

I'm not sure "we had to stop people from using our app because it was going to put us out of business" engenders much confidence in either the users or the shareholders.

Crisis communications is easy to mess up and companies do not prepare for it in advance. I imagine it's a lot like the very first time an app you've built crashes really bad. Without any planning it's easy to panic and actually make things worse.

The only communication I saw from Robinhood is that they had to stop trading due to volatility. I think people jumped to the conclusion that it was them trying to act in their users interests.

The volatility was going on for days, yet they said nothing. They programmed their platform to block trading in advance, yet gave no prior announcement or warning.

A well-known investor with integrity publicly mentioned personal issues with the co-founders' integrity in the past.

Because they are a bush league broker

But they did - if you see the RH CEO on CNBC - this is what he is trying to explain.