Gamestop?

[suomalainen]

@2: There is no risk to RH of zero-margin buys, yet I believe they were also shut down.

False. You misunderstand the mechanics of how stocks actually trade and settle. See, e.g., @jacob's post on the page 3 of this thread and the linked article. Clearing houses and regulators and SROs impose capital requirements and collateral requirements BECAUSE there is risk. Just because the average retail trader doesn't understand why the market is structured the way it is doesn't mean that therefore the structure should be done away with because it curtails "the poors'" "right" to speculate in securities markets.

[nomadscientist]

See my edited comment above. What you are saying is only true of a symmetric trading halt. Banning (retail) buys but not sales is market manipulation.

[jacob]

I'm possibly derailing this thread, but it does highlight certain trends in American society that I find disturbing. There's a general pattern here. Lemmesplain with an allegory

Once upon a time, I was on my way to work on the subway when it was suddenly announced that "there was a problem with the tracks" between X and Y and that people would be taken in buses. So we all got off at station X and stood in line and after twenty minutes very many buses arrived and drove us over to station Y where we got on the subway again.

Remarkably at the time, there was no calls for congressional investigations as to what a so-called "track" might be, what function it served for the subway, and what they planned to do about it (repair it and carry on?). No complaints from the train passengers about "losing their freedoms" to be on the train between X and Y. No derpy social media memes or youtube-journalists "just-askin' questions" that could be answered with two minutes of research. No conspiracy theories about how the evil bus company had colluded with the subway and orchestrated the whole thing to profit from the little guy. Or complaints about how people hiring taxis were literally getting away with it again.

Rather the sentiment was "@#$^@ I'm going to be late for work, but at least I'm not stranded and this only happens every few years, so I guess I'll keep riding the subway."

Whereas, it now seems that every single time there's a problem with any operation that is even remotely complex, even otherwise normal people immediately pursue conspiracy theories ("I'm a-make up my own mind") and take the opportunity to blame whatever group in society they dislike the most. It's not like this didn't also happen in the great financial crisis or with the pandemic or with the election, but the effect seems to be getting stronger and stronger.

[suomalainen]

@nomad, My comment addressed your assessment of "risk" to the broker, which was incorrect.

Fully agree that asymmetric trading halts don't look good. Perhaps there was a reason to do this at any given (poorly capitalized) broker, but my initial reaction was "what lawyer signed off on this?" But, if you shut down both sides, then you're locking your existing customers into their trades by fiat (rather than by "only" preventing them from selling to new RobinHood schmucks) which ALSO doesn't look good, so my guess is that someone made the decision at RobinHood that cutting off buys but not sells would be the lesser of two evils to allow RH to manage their clearing house risk and regulatory requirements while also doing the least damage to their customers. It's a shitty spot to be at, especially when your customers aren't sophisticated and immediately assume some conspiracy to "fuck them over to benefit the hedge funds." It's not some grand conspiracy. It's a bunch of greedy people all over the place trying to (1) make a buck and (2) not go out of business due to breaching their contractual and/or regulatory requirements.

Edit: yeah, what jacob said ^^

[nomadscientist]

It's not a question of looking good. Please do not put words in my mouth.

Like many things, this comes down to perspective. Maybe the USA is a rechtstaat or maybe it isn't; let's just bet in our different directions and see who is richer in thirty years.

[suomalainen]

It's not a question of looking good. Please do not put words in my mouth.

Like many things, this comes down to perspective. Maybe the USA is a rechtstaat or maybe it isn't; let's just bet in our different directions and see who is richer in thirty years.

I wasn't putting words in your mouth. I was typing words from my mouth. And frankly I don't care if you're richer than me, now or in 30 years. I have no idea what that sentiment has to do with how the securities markets work, but you know, enjoy your narrative.

edit: for completeness, I will note that this is what you had posted before editing it, apparently:

Seems like you know a lot about the operation. I would rather not discuss this with someone in the high levels of management of Robinhood who has access to their internal C-suite minutes. I do not want to get subpeonaed.

Good luck.

So, you know, it seems clear to me that you have a narrative in your mind and ... well, confirmation bias being what it is, I suspect further conversation with you will not lead to any further gains for either of us.

[nomadscientist]

You said you agreed with me that it does not look good, which is a statement that I said it did not look good.

It was an attempt at a polite way of saying that that I do not wish the continue the discussion, since I believe you decided on your conclusion before entering it, have been rude and aggressive (which is OK by me), and your posts tilted in the direction of mocking rather than argument (which is not).

I, of course, also do not care about your finances. The statement is not meant to invite an actual personal comparison, but to say that we will judge the question by future events rather than present arguments.


edit: I apologize for the above quoted post, which I deleted, because it engaged with the tilt toward mocking. I do not wish to have interactions of that kind, and request that the above poster remove it from his post.

[suomalainen]

fwiw, I wasn't mocking you. But I do think the narrative (I do not know whether this is your narrative, but speaking generally of some of the sentiments on the wsb reddit) of "little guys" vs "big money" or whatever is naive and/or cynical, as I noted previously.

I still don't know what future finances have to do with market structure. But again, fwiw, I work for an institutional investor, not a broker, but I have some knowledge of securities laws and market structure. It's just way more complicated then laypeople think, and for good reason.

edit: although I am curious to see what, if any, market structure improvements this may drive. I'm still not sure what the point of T+2 (or 3) settlement really accomplishes, although it's possible that it has something to do with bulk processing and error checking and the like, like what happens with ACH payments (vs wires).

[suomalainen]

suomalainen wrote: ↑
Sat Jan 30, 2021 9:50 am
fwiw, I wasn't mocking you. But I do think the narrative (I do not know whether this is your narrative, but speaking generally of some of the sentiments on the wsb reddit) of "little guys" vs "big money" or whatever is naive and/or cynical, as I noted previously.

I see. You weren't mocking me. You were just replying to my posts as if they contained a "narrative" which you accept I didn't advance and may not even believe in (without reading them at all?) in a hostile sense. That's all.

I still don't know what future finances have to do with market structure. But again, fwiw, I work for an institutional investor, not a broker, but I have some knowledge of securities laws and market structure. It's just way more complicated then laypeople think, and for good reason.

And here, you mock [maybe me - maybe the other guy, with the narrative].

Look, if I offended you, I apologize. I still don't know how any of that is mocking, but ok. I don't know anything about you. I didn't read all your posts, if even there were other ones. I was simply responding to the statement that a particular broker has "no risk" when facilitating retail trades in a volatile stock. Yes, in my direct response to you I did conflate it with a general response to a general idea floating in the interwebs that what happened was a conspiracy. Apologies for being unclear and/or seeming to ascribe to you beliefs that you do not hold.

That said ... I admit I am surprised that you seem so sensitive about this. To me, I was just talking. My only "agenda" was to clarify how the securities markets work and why a RobinHood might have needed to take certain steps while a better capitalized* broker did not need to. And here I should make the further clarification that RobinHood might have been capitalized well enough compared to pre-existing requirements, but perhaps those requirements need to be revisited to address a broker's customer base. I imagine Vanguard didn't need to halt trading (at least I think it didn't) because (i) it is better capitalized absolutely and (ii) it is better capitalized relatively, in reference to its customer base (i.e., its customers as a whole hold a much, much lower percentage of extremely volatile stocks). As I said, I'll be interested to see if this drives any reexaminations of market structure. I don't know enough about market structure to know how it could be improved.

[nomadscientist]

I accept your apology and withdraw from the discussion. If I have offended you, I also apologize. Please let it drop.

[Seppia]

I found this thread informative even if I understood about 85% of it.

https://twitter.com/compound248/status/ ... 48898?s=21

[jacob]

In case anyone is interested in the market plumbing, here's the corresponding market plumbing "code book" or at least one version of it... didn't bother to find the most up-to-date. This is more to the point that operations are rather more practical/complex under the hood than would fit within a political ideology or on a meme.

https://www.sec.gov/rules/final/34-51808.pdf (it's 500+ pages!)

I actually read the entire thing back in the days but I'm by no means as "informed" as much as I'm simply in a position to appreciate the complications (unknown-knowns). With that Dunning-Kruger disclaimer out of the way, a way forward might be RH et al. securing revolving lines of credit / insurance from major operators to backstop them so as not to be caught by the cracra with their pants down in case it happens again. This would be similar to Berkshire coming to the rescue (and profiting accordingly) to certain investment banks in 2008. Another solution would be regulatory and stepping up capital requirements for certain brokers. These types of solutions only last about a decade as people/politicians increasingly cry for deregulation as memories of past disasters fade.

[white belt]

It will be interesting to see how this plays out over the next few weeks.

It seems likely that RH ran into liquidity issues, as mentioned by Jacob and others. They are being scapegoated and likely will be raked over the coals during the congressional hearings because the court of public opinion has already found them guilty. Even if they did nothing wrong, this episode clearly reveals scalability issues in their business model. I have no reason to believe that the volume of trading we saw this week will subside any time soon and in in fact I think it might increase as more people get in on the trend. Many have already migrated to Fidelity and other platforms that did not restrict trading. Keep in mind RH already had to pay a $65 million fine a month ago for not disclosing payments it received from investment firms.

The more interesting question is, does Citadel have a conflict of interest in how they are positioned within the market? Citadel Securities and Citadel LLC are both founded by Ken Griffin. Citadel Securities is RH's biggest market-making partner and largest purchaser of information about trades RH customers make. Citadel LLC bailed out Melvin Capital and would've benefited greatly from the GME stock dropping as it did on Thursday after RH shutdown buying. This is really the type of market structure that may need to be re-evaluated as it is an example of how many firms are able to profit on playing both sides of the market. Citadel also paid Janet Yellen ~$750k in speaking fees over the last 2 years so that will likely bring some scrutiny. See here for more: https://www.washingtonpost.com/business ... op-reddit/

This is a complex issue and I'm trying to find sources that go beyond the layman level.

First up we have a podcast recorded on 1/28 with Grant Williams and two highly successful short sellers; Marc Cahodes and Bill Fleckenstein. I recommend listening to the entire thing but I'll pick out a few highlights (note it was recorded prior to the news that RH requested $1 billion in liquidity). Cahodes and Fleckenstein start with differentiating between typical short sellers which usually identify fraudulently overpriced stocks, with over-leveraged short hedge funds like Melvin Capital that got way too much money from prime brokers. They point out that in this case the short sellers are being vilified for no reason. Then they get into the bigger picture:

If you look at what's gone on for 25 years, this is the 3rd bubble that we've been involved in and now [the central banks] are not even going to attempt to stop the money printing, instead they are going to continue to do it. Those policies and how they've conditioned people to believe has modified investor psychology and behavior such that we are at a place like this where we are now. People see all kinds of real companies go to stupid prices, so then prices don't mean anything and we can take bankrupt companies to stupid prices. None of this is really real. The other side of it is the regulators have done a particularly poor job, especially in the wake of the '08 real estate financial bust. Nobody that should have gone to jail did for all intents and purposes. And of course the politicians don't get involved because they love can-kicking. So you've got this moment in time [...] where you've got the craziest speculative elements of 1929, 1969, 1989 in Tokyo, and 1999 in America all at the same time. Ordinarily that would make you think oh this is probably a top, except for when you think about those periods (when things were wild), the central banks had been tightening credit [...] in one way or another for quite awhile.

What's happened over the last 30+ years since the Greenspan Put became very apparent is, slowly but surely, these markets have been made a mockery of. Not by the participants, not by the people trying to work in and around assets, but by central banks and by regulators. You've seen the central banks provide this put to Wall Street while Main Street was languishing. You've seen the SEC be so lax and fail to really punish anybody for anything except for small guys [...] when there is high profile stuff going on that you'd think would be a slam dunk to make an example of people. The central banks and the regulators have nowhere to look but the mirror for what's happening in these capital markets right now.

The people who have caused the fault skate through it all as heroes, legends, greats, the whole thing. The amount of fines that Goldman and JP Morgan pay over mine and Fleckenstein's career is incredible to just go back and do the same stuff over and over again. I'm sort of suprised and I'm also not really surprised that the media doesn't dig further into what's really at play here. [...] It's very dangerous. They are shutting down Robinhood to allow Citadel and others to trade or run in front of things and manipulate markets is beyond dangerous and needs to be looked at deeply; how Ken Griffin actually makes his money and the amount of leverage he uses and who is influenced to allow him to skate when other people are persecuted.

Source: https://www.grant-williams.com/podcast/ ... c-cohodes/

[ertyu]

It will be interesting to see how this plays out over the next few weeks.

I'm ont he side of, it'll fizzle out. That's what the major players want it to do. Retail by itself can't move this - I believe those who say they didn't move it by themselves to start with, just started it and gave a bunch of big guys plausible deniability to pile on. My prediction is, mkt keeps grinding while retail bagholds.

[white belt]

@ertyu

There was some discussion on Friday’s RealVision Daily Briefing that the way GME and AMC stocks were moving suggested the work of algorithms influencing price, which lends credence to the theory that big institutional players were piling on to the trend.

GME might fizzle out, but I think this trend of retail vs Wall St insider is going to continue because of the macro factors I’ve listed previously. They were largely successful with TSLA and now GME. Who knows what they will target next?

Edit: This is now the 4th consecutive day of GME being the top story on front page of Reuters in the USA.

[Mister Imperceptible]

@white belt

Thanks for bringing out that info to everyone. I think anyone who listens to the recent Williams/Fleck/Cohodes podcast will understand the situation from a much broader perspective.

@nomadscientist

You just have to accept that others do not find it objectionable that citizens Goldman Sachs and JP Morgan have property rights that you and I do not (included in their exclusive rights are rights to free speech and rights to the property that you and I thought was ours). The status quo has worked to their benefit (so far). They are short volatility.

Not silver?

An update on the silver situation:
https://www.zerohedge.com/markets/reddi ... eze-silver

[Seppia]

If one reads the “happy Hawaiian” Reddit post quoted in the zerohedge article and still believes the wsb guys are a bunch of poorly educated 20 year olds trading $1200 stimulus checks in their parents basement, we should try to sell him/her a bridge.

[white belt]

@Seppia

Good point.

However I would note that in the case of GME, the majority of WSB people do fit that unsophisticated demographic. They just happen to be very loyal so far in following what the knowledgeable WSB members tell them to do (in the case of GME it was deepfuckingvalue, who has since been identified as a former financial advisor).

[Seppia]

My whole point is that the “unsophisticated” people who are all going “yeah! Let’s stick it to the hedge funds and the one percenters! I’ll YOLO my stimmy check now!!!1111one!!!1” are these people’s exit strategy.

There are no “good guys” in this

[suomalainen]

You just have to accept that others do not find it objectionable that citizens Goldman Sachs and JP Morgan have property rights that you and I do not

Do you also find your neighbor's owning a larger house objectionable, I wonder? What about doctors owning their medical degrees and such degrees being a requirement to practice medicine in these United States? Is it that you don't like "others" being richer than you? Or that you don't like the concept of private property at all?