<story><title>Robinhood is said to draw on bank credit lines amid tumult</title><url>https://www.bloomberg.com/news/articles/2021-01-28/robinhood-is-said-to-draw-on-credit-lines-from-banks-amid-tumult</url></story><parent_chain><item><author>Justsignedup</author><text>Because it is the equivalent of &amp;quot;we literally don&amp;#x27;t have enough money in the bank to allow you to trade on these&amp;quot;. Which will be a very problematic statement for a trade broker. The equivalent of panic if too many people withdraw from a bank.&lt;p&gt;Few people are actually getting this information. So... its not horrible press for them.&lt;p&gt;And if they say this. People would sue like MAD. Because it would be &amp;quot;RH didn&amp;#x27;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 ...&amp;quot; and so the lawsuits begin.</text></item><item><author>g9yuayon</author><text>This sounds the real reason that RH limits the trading of a number of stocks today? If so, why didn&amp;#x27;t they give this straightforward reason? Instead, they resorted to vague excuses like misinformation and &amp;quot;for your own good&amp;quot;.</text></item><item><author>JumpCrisscross</author><text>The Depository Trust &amp;amp; Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You&amp;#x27;ve never heard of it unless you&amp;#x27;re a professional trader, but it&amp;#x27;s actually quite fascinating to read up on.&lt;p&gt;Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.&lt;p&gt;There are rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.)&lt;p&gt;In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares&amp;#x27; worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. Done.&lt;p&gt;Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don&amp;#x27;t know if Robinhood is able to do that quickly. So instead they pulled the plug.&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Depository_Trust_%26_Clearing_Corporation&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Depository_Trust_%26_Clearing_...&lt;/a&gt;&lt;p&gt;[2] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.dtcclearning.com&amp;#x2F;products-and-services&amp;#x2F;settlement&amp;#x2F;settlement-services&amp;#x2F;risk-management&amp;#x2F;296-risk-management-overview&amp;#x2F;2277-collateral-valuation-of-securities.html&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.dtcclearning.com&amp;#x2F;products-and-services&amp;#x2F;settlemen...&lt;/a&gt;</text></item></parent_chain><comment><author>mrep</author><text>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.&lt;p&gt;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.</text></comment>
<story><title>Robinhood is said to draw on bank credit lines amid tumult</title><url>https://www.bloomberg.com/news/articles/2021-01-28/robinhood-is-said-to-draw-on-credit-lines-from-banks-amid-tumult</url></story><parent_chain><item><author>Justsignedup</author><text>Because it is the equivalent of &amp;quot;we literally don&amp;#x27;t have enough money in the bank to allow you to trade on these&amp;quot;. Which will be a very problematic statement for a trade broker. The equivalent of panic if too many people withdraw from a bank.&lt;p&gt;Few people are actually getting this information. So... its not horrible press for them.&lt;p&gt;And if they say this. People would sue like MAD. Because it would be &amp;quot;RH didn&amp;#x27;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 ...&amp;quot; and so the lawsuits begin.</text></item><item><author>g9yuayon</author><text>This sounds the real reason that RH limits the trading of a number of stocks today? If so, why didn&amp;#x27;t they give this straightforward reason? Instead, they resorted to vague excuses like misinformation and &amp;quot;for your own good&amp;quot;.</text></item><item><author>JumpCrisscross</author><text>The Depository Trust &amp;amp; Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You&amp;#x27;ve never heard of it unless you&amp;#x27;re a professional trader, but it&amp;#x27;s actually quite fascinating to read up on.&lt;p&gt;Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.&lt;p&gt;There are rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.)&lt;p&gt;In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares&amp;#x27; worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. Done.&lt;p&gt;Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don&amp;#x27;t know if Robinhood is able to do that quickly. So instead they pulled the plug.&lt;p&gt;[1] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Depository_Trust_%26_Clearing_Corporation&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Depository_Trust_%26_Clearing_...&lt;/a&gt;&lt;p&gt;[2] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.dtcclearning.com&amp;#x2F;products-and-services&amp;#x2F;settlement&amp;#x2F;settlement-services&amp;#x2F;risk-management&amp;#x2F;296-risk-management-overview&amp;#x2F;2277-collateral-valuation-of-securities.html&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.dtcclearning.com&amp;#x2F;products-and-services&amp;#x2F;settlemen...&lt;/a&gt;</text></item></parent_chain><comment><author>g9yuayon</author><text>I can accept that they ran out of cash. It&amp;#x27;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.</text></comment>