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Robinhood is limiting purchases of stocks: AMC, Blackberry, Nokia, and GameStop (twitter.com/khoustephanie)
2706 points by Miner49er 11 months ago | hide | past | favorite | 1643 comments

For pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543.

As for this thread, it's got 1500+ comments. If you want to see them all you'll need to click through the More links at the bottom, or like this:




(Use your imagination after that.)

Can someone help me understand Robinhood's POV? This just seems so outrageous that there must be some sane rationale that I'm not seeing.

Why do Robinhood, Reddit, Discord, etc feel like they have to respond to this? Whether the investments being made are responsible or not, it doesn't seem like it should be their place to intervene.

If the hedge funds over-shorted GME and WSB recognized that and traded against that bad analysis, then that's great! If the pendulum swung the other direction and WSB is trading into some momentum, how is that any different than the hedge funds doing the same with shorts? Why should Robinhood pick a winner (siding against their own customers)?

I don't think this was Robinhood's choice.

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.

> 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.

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.

> Melvin doesn't have a short position anymore.

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 din't bail them out and they didn't close the positions, if they did, the "bailout" would be a complete writeoff -- why would Citadel do that?

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.

> if they did, the "bailout" would be a complete writeoff

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.)

Are you saying that Citadel just lent someone money to close short positions worth a very significant percentage of their total assets? (Melvin having 11 bilion in total assets and Citadel giving them 3 billion).

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".

> Citadel just lent someone money to close short positions worth a very significant percentage of their total assets?

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.

> You're alleging securities fraud.

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.

They got away with worse in 2008?

No "they" didn't. Wall Street is not a homogenous thing. You're thinking of banks in particular, which are about as different from hedge funds categorically as Facebook and Salesforce. Sure they're both tech companies with software products, but they have entirely different business models.

I believe GP was specifically referring to Citadel, nee SAC: https://popular.info/p/the-merry-adventures-of-robinhood

You may be confusing SAC / Point72 with Citadel.

Nope it was a joint infusion:

"[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."

I was talking about the "Citadel, nee SAC" bit in your comment.

Genuinely curios, what type of assets can only be liquidated 33 cents on the dollar?

And what is the likelyhood Melvin had such a significant proportion of their portfolio in such assets?

Junk bonds. Packages containing failed/failing mortgages. Unsecured medical debt.

Good grief, can you imagine trying to sleep at night with a portfolio of unsecured medical debt? "Pay me for your cancer treatment!"

If you want to feel good, buy it for pennies and then forgive it. 100$ to you can be several thousand to someone owing the debt.

You can do exactly this through: https://ripmedicaldebt.org

Could you in theory buy your own debt?

Yes. Or just negotiate it with the current holder, knowing what it goes for on the market.

This would be a good NFP strategy until US gets universal healthcare

@hanklazard best me to it

The type of assets that you need to sell in the next hour, of such a magnitude that there are only a few buyers.

Think about it, you're staring at a mob of people willing to buy the stock at absurd prices... Why would you announce that you've closed your shorts instead of keeping quiet and profiting of the mob?

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...

Here's the source --

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.


> the perfectly executed short ladder today

I missed this. What's this referencing?

Selling back and forth at a lower and lower price while WSB couldn’t buy to keep the price up

> while WSB couldn’t buy to keep the price up

Yes which could be called the crime of these brokers

> 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

That would be securities fraud.

Well surely that never happens. No large organization has ever committed securities fraud in order to make or save billions.

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.

> No large organization has ever committed securities fraud in order to make or save billions.

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."

This will probably be my least popular post ever, but the explanation needs to get out there for why Robinhood stopped trading on GME.

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.

> 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”.

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?

DFW made his fundamentals case months ago and had a real (if possibly mistaken) case at that point.

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.

Interesting, all I see is comments about them liking the stock. The negative comments I’ve seen relate to the assumed market manipulation tactics.

Taking the last week out of context makes little sense, because the last week is just a snowball that started on the 11th of January 2021, when Ryan Cohen and two of his friends from Chewy joined GameStop’s board, after building up a 13% stock position in the company over the course of the last few months. They believe that GameStop can be reimagined as a force in online retailing: https://www.bloomberg.com/news/newsletters/2021-01-25/money-...

This is crowd sourcing to create a coordinated attack like DDOS-ing, but how did we get here? Over-shorting. How did we get there? Hedge fund data sharing dinners? So this seems more like a swing back in the other direction. I presume when the dust settles the SEC will claw back these "illegal" gains from the individual investors. Too bad trades aren't settled via blockchain.

> Unprecedented numbers of people on Reddit, Twitter, and elsewhere collaborated to intentionally create a short squeeze on GME in the last week.

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?

Robinhood has no stake in whether or not individual trader actions are legal, and the entire distinction between legal and illegal here is based on being able to determine individual trader's motives. Robinhood is acting illegally by your own argument by manipulating the price and availability of a stock.

Basically there was a good fundamental analysis with due diligence that GameStop was over shorted and priced under value. Some people thought it was a good analysis and started buying. When more people buy... the price goes up.

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.

I found this interesting/believable https://tinyurl.com/y64hzsl6 on WSB concerning RH refusing additional buys of GME.

It's one thing to commit securities fraud. It's another to do it, blatantly and openly, as part of the biggest news story of the week.

People panic.

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.

To be clear, they didn't "announce" they closed their positions. They whispered it to a CNBC news anchor on the phone.

There's no announcement, just a sourced rumor, and no proof they closed their trades when they said they did.

Not if you ask one of your buddies at CNBC to announce it, and when caught they just say oops my bad, it was based on incorrect info.

How have they exited their short position when the short interest is still ~130% though?

The higher the price goes, the more incentive for new people to buy short, who aren't subject to the same pressure to get out fast that the ones who've been there longer were.

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.

> How have they exited their short position when the short interest is still ~130% though?

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.

Hmm. There seems to be a lot of unknowns right now. Do you think the information about how this all went down will come out once it's over?

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...

> Do you think the information about how this all went down will come out once it's over?

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.

High short interests make a lot of sense right now, you have a shitty company with a market cap above 50% of the S and P 500 trading at multiples higher than IP rich tech companies like Apple. The stock is overvalued many times over regardless of whether you use sentiment or NPV’s. The more overpriced a stock becomes the more bears will join the marketplace, that’s inevitable. Most hedge funds take losses once the price goes about 30% over their position, most early bears definitely went above this but there is little chance they are still holding. That means that these new shorts are likely to have set prices in the $250 plus range, where the potential returns are astronomical and the little guys trying to stick it to the man are likely to foot the vast majority of the Bill whilst making the man and a small number of early buyers a shit load of money

If the early bears have already exited I would have expected the price to jump higher though.

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.

Do we have real time access to the short interest numbers? My impression is those came from a report that comes out every two weeks?

Not real time, but theres this wallstreetbets post from yesterday.


Posted before Melvin capital claimed they had closed their position?

If you look at the comments it seems like the Reddit post was after the announcement from Melvin, because people are accusing them (Melvin) of lying.

But also possible the underlying data was collected by EOD the day prior. Point is it's not a very clear data source IMO. Would be nice if real time short interest was public info.

How is it legal for it _not_ to be? Keeping that information hidden drastically incentivizes naked short selling -- and there is an exploit for naked shorts that will be incredibly difficult to prevent going forward ... no -- the exploit does not really rely on collective action -- it relies on the perception of collective action -- which is definitely fake able in an automated way with current technologies.

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 ...

Yeah, sounds good to me. Maybe some AOC staffer will read this comment and put it in the next bill.

Yeah I don't buy this at all. There isn't enough stock for them to close their position.

> There isn't enough stock for them to close their position

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.

I am not highly knowledgeable on this, but... even if it's the same share that Anna sold to Bob short in the first place?

Yes, even if it's the same share that Anna sold to Bob short in the first place. That's how you get short interest > 100%. The market doesn't care, it only cares that a share was sold from Anna to Bob and then from Bob to Anna. The individual shares are completely fungible. (They don't actually exist, they're just numbers in a contract.)

Wow. That's incredible.

> Tens of billions of dollars of GameStop have been bought and sold over the past few days.

Yes, at prices that are several multiples above the price they shorted at.

I don’t believe Melvin has public investors that could claim to have traded Melvin’s shares on the basis of Melvin’s misleading statements.

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).

>That would be securities fraud.

Naked shorting to drive down the price is also securities fraud. And yet...

Aren't we already discussing SEC violations here?

Yeah, I don’t see how it being fraud leads to the conclusion that it’s not happening.

If the alternative is bankruptcy and the destruction of your legacy, would you risk it?

If the penalty is less than the potential fine as has sometimes been the case, is that really that big of a deterrent?

Seems like the most financially responsible move. And these guys are fiduciaries.

> That would be securities fraud. Are you saying that they wouldn't commit securities fraud?

Weather or not Melvin has the position, you can look at the borrow rates and short interest. Someone is balls deep in shorts and they have to cover one of these days.

Yeah I don't believe it. Or they transferred it to a complicit 3rd party who will eventually benefit.

> The chances that a fund the size of Citadel has any strong opinion on the direction of GameStop stock is vanishingly low.

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.

> The chances that a fund the size of Citadel has any strong opinion on the direction of GameStop stock is vanishingly low

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.

A short squeeze is nice if you get caught in in by accident as a stock owner. During the Volkswagen short squeeze a lot of lower level employees at Volkswagen were suddenly able to fully pay back their mortgage. Isn't that cute?

I doubt many gamestop employees got to do that this week, but there was a similar, smaller drama also going on with a Blackberry short squeeze, and that might have gotten a few extra mortgage payments taken care of.

>Melvin doesn't have a short position anymore.

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.

I am ashamed to have written this comment. I didn't know about clearing houses and shouldn't have been so arrogant in a field I'm not familiar with. Funnily enough I put my money where my mouth was and profited, but that was just luck. Whatever.

> Melvin doesn't have a short position anymore.

Untrue, the number of shares short is still 70 million. Nothing changed.

They aren’t the only people with short positions. They could’ve exited and others picked it up.

I’ve no dog in this race; just thought I should point that out

The question is, would there be any consequence if he lied about it? Given the huge amount of losses, it’s not unreasonable for one to lied about closing their position in hopes of the price falling down.

I wonder... couldn't people do this over and over again?

how long can citadel and/or other entities hold?

No, or rather, only if MM's like Citadel over-short like they did here. It's a rare catch by retail that they were overextended, and retail pounced on the opportunity, just like the MM's do against retail all the fucking time, but now that the little guys are doing the fucking, it's all fetch me my smelling salts and call the sheriff!

Retail didn't do jack to the market makers and Melvin capital isn't a market maker.

So many people here who have no idea what the hell is going on, and yet are so confident.

Melvin capital is a market maker, it's in the list at least... You might check yourself before acting so high and mighty. 1 is the reference for wikipedia. 2 is just another source in case you doubt. By the way, Citadel is also on that list. Retail did do something to Citadel and Melvin... so wrong on both counts.

1. https://web.archive.org/web/20070228050751/http://www.alphat...

2. https://www.level2stockquotes.com/market-makers-m-list.html

Melvin securities is a completely different company than Melvin capital.

Retail did nothing to Citadel securities.

Welp I guess I can eat crow on this one then. You are right it seems.

This entire GME WSB thing is a bunch of people wanting to feel important. That's why there's so much high-and-mighty talk even though the facts of the matter are..pretty boring.

The facts are supremely boring. Fund gets caught with bad luck. Fund blows up. Life goes on.

Even the amount of billions being transferred here are not interesting.

It stops being boring when brokers start directly interfering with the volume by changing what traders are allowed to do in the middle of a trading day.

I'd say this is a vast oversimplification of the situation, don't you agree?

Citadel is probably having a very busy, but very good day today.

I wonder whether Citadel was the / a major lender for the shares in the first place. That would explain a lot. But even then, I doubt that there was foul play.

I certainly get pulling the plug on options, but I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread. If there's too much pressure on the buy side and you can't keep your position neutral, you just raise your offering price until you're not selling shares at too fast a rate anymore.

> I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread.

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%.

I mean, we can see that this idea that the stock is too risky to quote is not true because there is a two-sided market in it right now, which can be traded on multiple platforms. The only actually existing peculiarity here is that Robinhood is not allowing customers in possession of 100% margin to open a new long position.

> we can see that this idea that the stock is too risky to quote is not true because there is a two-sided market in it right now

On exchanges. Those are buyers and sellers as well as market makers. Robinhood connects to a subset of the latter.

> Those are buyers and sellers as well as market makers.

Nope, pretty much just market makers.

Hopefully others realize that downvotes on HN do not change the reality of how market makers function.

Today it opened at $265, hit a high of $483 and dropped to a low of $112. At 2:00 pm it was $226, 2:05pm it was $431, and then came back down to $237 at 2:15pm. That sort of volatility is, I think, unprecedented which means the market makers don't have good risk models. So you're right that they could be cleaning up here with a large spread. But that profit comes at unknown levels of risk.

An internalizer must match displayed NBBO at the exchanges. If it can’t, it has to route to the exchange, pay exchange fees, and on top of that still pay for the order flow.

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.

I don't think it's an issue of Citadel not quoting GME. In my understanding, Robin Hood is allowing purchases to close a short position, so there exist quoted prices, they just don't want people expanding a long position.

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.

I don't think it's coming from RobinHood; eToro is also blocking buys and they have the message "We have made this change following a notification from our liquidity provider that they have set $GME to close only status".

I got similar email from tasty. They said Apex clearing won't allow any new positions on meme stocks.

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.

You're making assumptions that it was the liquidity provider who pulled the plug and not the much more likely option that it was Robinhood pulling the plug for liability reasons.

Tastytrade also restricted trade in the same manner. They send a mail to all customers and made it very clear that it was Apex Clearing who forced their hand. It is very unlikely that something different happened at Robinhood.

No, I'm granting that as the parent's premise. And what liability reasons would Robinhood have to disallow buying an NYSE listed stock with 100% cash?

They've already been sued by retail investors who have lost their cash in the past and courts have already shown themselves to be somewhat partial to "the gamified interface just made me spend $1k I could barely afford because it was so fun!" arguments that RH is liable.

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 liability reasons

For trying to get some positive media coverage, after being constantly bashed and blamed by them for the uneducated retail trader boom.

Market makers on exchanges generally have a contractual uptime obligation if I am not mistaken, but I'm not sure that applies when talking about payment for order flow.

Gme has been freezing up for a few seconds to fifteen minutes at a time for days now. Sounds like a breach to me, unless someone else ordered a halt. Robinhood itself was responsive, as were other stocks.

Those are due to exchange LULD halts. Not brokerages.

>Melvin doesn't have a short position anymore.

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 is blocking trades on these stocks where Melvin Capital holds shorts for any platform that uses them; Robinhood is just the most prominant among small retail traders.

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.

I'm just not really sure I understand the narratives being thrown around right now, and I'd like to think I understand the economy somewhat

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.

Yesterday, there was a 140% short position on Gamestop.

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.

> So - why would they stop?

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.

>Why wouldn't you short GME after the price has risen so high?

Because the stock is already over 100% short and an army of retail investors is purchasing it

So? If you had shorted GME yesterday, you would make a bunch now that the price has collapsed.

What if the price goes up further? It's already rebounded 50% from the short ladder/blatant robinhood manipulation. Why put yourself on the hook for something during a black swan event?

> Why put yourself on the hook for something during a black swan event?

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.

Lots of individual retail investors, including myself, take short positions on a regular basis. People keep saying that all the short positions are held by hedge funds, but in reality there's a lot of individual investors that have short positions too.

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.

retail investors are a very small minority of short positions. hedge funds do most of the shorting in the market

They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.

How likely is it for them to close their position when the price hit so high? That would be a huge loss. Why not wait a bit, make a few desperate phone calls and leverage their power before that?

Because of the expiration date of the short they sold and uncertainty over whether the price would continue to increase.

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?

Shorts aren't options, they don't have expiration dates. You can hold a short indefinitely just by paying interest on the borrowed share value when you entered the position. You can even keep the short from being forcibly closed during a squeeze by providing more collateral.

Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses.


I have to admit I'm missing something in this story. If the shorts do not have to sell, what's the endgame for WSB? Is it just the margin requirements will be too high, thus forcing lots of them to close their position? I see lots of references to the short squeeze happening tomorrow, so there must be something that force people to settle their position tomorrow?

What happens when the party you borrowed the stock from, seeing the new high price, wants to sell it to cash in on the fever? Can they not force close the position if the price moved up by some threshold?

Sorry I misspoke.

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.

>Melvin Capital's short position was in the form of puts, I think.

This is incorrect.


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)

"Melvin’s most recent filing showed that it held 5.4 million puts on GameStop, valued at more than $55 million — an increase of 58 percent during the third quarter."

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.

The other commenter is right that shorts have unlimited risk, and put option are defined, but they can technically be short by selling calls which would make them expire-able.

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)

Is it wrong to call selling calls short selling? Regardless, I think it was puts that they were buying (so sorta the contrapositive).

I don’t buy it. They’d try some tricks before capitulating. And look, it worked. Since RH stop allowing buys the price went down

> They didn't tell you how much of the position they closed out on. They can say "they closed their position" even if they only closed out on 1% of it.

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.

Serious question: Has anyone ever been jailed for publicly saying they've closed a short position but not actually closing it all?

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?

The thing the SEC is going to take issue with is lying to investors. Investors have a right to know what's going on with their money.

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.

The same way that tweeting "funding secured" puts you in jail?

Musk didn't even make any profit from that (he didn't sell) and he still was fined $20 million and had to give up his Tesla board chair.

Recall that when that was said, it was being said by an executive and director of a public company.

If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure.

I am not trying to conspire, genuinely curious.

> If Melvin Capital got out, then why was the stock still 140% shorted after that announcement? I thought that 11% of the shorted stock was from Melvin Capital, it doesn't make sense that there was no significant change in that figure.


Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.

with the stock price through the roof other funds (and retail investors) see it as a good opportunity to short.

> 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?

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.

Citadel securities does not "play games", they aren't YOLO-ing on a GME short. They are happy to model the market so they can hedge better than their competitors and make money off of the bid-ask spread.

Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.

>> 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?

IANAL also, but I would imagine that they would need to represent themselves accurately to their investors at the very least. Perhaps they could be telling their investors something different privately?

Yes, hedge funds send their LPs private "Investor Letters" with a lot more detail. Not sure who the public statement was meant for, but it might have been meant to discourage the public from taking opposing positions.

You wouldnt communicate to your LPs via CNBC or Twitter.

You may work on some fancy model but at the end of the day you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors.

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.

> you are taking a risk and there is a possibility to lose in the worst possible way. Call it games, YOLO or hedge better than competitors.

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.

> Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.

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.

Iirc they only stated that they closed "a" position. Others have run with that in a horrid game of telephone.

"Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop)"

You recall incorrectly. I encourage you to Google before commenting your recollections, it's quite easy to find.

Which "spokesman" made that statement? Pretty easy to deny no?

"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...

They have every incentive to lie

Where's your source?

Literally just google the sentence I posted, it's been reproduced on a number of reputable outlets.

Have they closed out their position? They said via CNBC that they have "closed a position", that's basically the quote that's making the rounds.

remember they don't have to report if they opened another one.

If they opened another one, it would be at the much higher price and thus fine.

couple hours after sister company of their major stakeholder (as of monday) disables purchases of the same stock for retail.

this stinks.

If SEC decides at some point that this was pump-and-dump scheme (even crowdsourced), the Citadel may become liable for enabling that scheme, even if they do not run it themselves.

It seems unlikely to me that Citadel would be liable. They're just processing bulk transactions -- they have no direct contact with customers. You could just as well blame the NYSE.

They were just processing bulk transactions.

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.

I think it is much more likely that Robinhood is liable than the liquidity provider for Robinhood.

>Melvin Capital closed out their short position yesterday with a large loss

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".

Wow. Just wow. As RH user myself, I did not have a clue I was actually doing business (indirectly) with Citadel.

I'll be closing my RH account soon. For now, I'll be holding the line on GME.

Everyone who buys options is doing business with citadel. They're the originator of most options. HFT firms are inescapable because their very reason for existing is to provide the market with the best prices.

Additionally, I speculate that Citadel/RH/IBKR and any other brokers that stopped buys on GME/AMC had sign-off from regulators (SEC etc.) where the fines they will surely incur would be limited to non-existent.

Not only hedge funds and brokers colluding against the retail investors, but the government as well. Yeah...sounds about right.

I am curious about holding GME. Is your plan to keep it long term? If not what are you plans to unwind your positions? Certain price point? Certain time frame?

I think a majority of people riding this don’t care where the money goes - they just want to stick it to the man.

Which IMO is silly. Institutional investors hold 160% of GME’s float. For every institutional investor wanting it to tank there are others who want to see it rise. It’s not like the institutions all agree or anything - “The man” is on both sides of this.

They are collecting interest from hedgefunds for the short positions and collecting interest from brokerages for capital they provide for margin accounts. They win no matter what.

If you plan on continuing trading, it is going to be difficult to avoid doing business indirectly with Citadel, they are a major market maker.

> This is definitely illegal.

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.

Why are Americans so crazy for absurdly long penal punishments?

Because nothing happened when wall street bankrupted the country by gambling and needed to be bailed out in 2008, and then paid themselves huge bonuses.

Very few people actually got punished, but a lot changed since 2008. Executives were forced to step down. Several major players went bankrupt and many more lost 95%+ of their valuations. Anecdotally, I hear that companies are taking compliance much more seriously. HN would call the surveillance at banks today Orwellian if they were more knowledgable about it.

Oh no people had to step down? They fucked up, lost their company loads of money and gasp got fired?!

Like. I understand your point but a lot of people really don't think that is punishment really

Even if they lost their job, they are still incredibly wealthy. That's not any sort of repercussion, at all. Its nothing.

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.

I think it's generally because most Americans would be looking at ridiculously long prison sentences for common actions if they got caught (like possession) and because the US's general view is that there isn't anything in the world that can't be cured by throwing more prison time at it.

Really? Where in America are you looking at a "ridiculous" long prison sentence in 2020 for possession?

The war on drugs sucked, but it was still mostly a war against dealers.

Not if you were black and used crack. And pretty much any prison for posession and use is rediculous, if its a problem for the user it is a mental health issue and prison is the wrong treatment. And of course the limits on what determines if you're a dealer is set low enough, and carrier laws meant that many users were getting prosecuted like dealers. And what defines a "dealer" since someone doing a group buy for three friends is significantly less socially problematic than someone trafficking drugs across the border.

Afaik there is a recording of Nixon saying that they want to use drug penalties to go after black people and hippies. A lot of times those racially biased outcomes are the product of many unrelated parts of a big and complicated system, but in this case the top of executive government seemed pretty deliberate about this.

There is no such recording. A reporter who interviewed an aide of Nixon for his autobiography claimed that that aide said that (but he only claimed so after the aide had died).

I don't know about blacks or hippies, but Last Week Tonight played an Oval Office tape of Nixon wanting to target marijuana laws because those in favor (of legalization) were Jewish.


There is indeed no such recording - but calling the official an "aide" is a bit inaccurate, the official in question was the domestic policy chief[1] - rather than a random secretary that claims to have overheard something.

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.

I think the important bit is that the chief/aide/whatever didn't claim to have overheard anything at all, rather someone who talked to them claimed that they said Nixon had said that.

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.).

Boomers hated Nixon because he undermined the Vietnam peace process for personal political gain elongating the war that they then had to go to the trouble of dodging the draft (as long as they were rich enough).

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 must have misremembered then. There are so many recordings of Nixon saying offensive things that I can't keep them all straight.

I of course agree. It is ridiculous. I also grew up in one of the cities that was the center of the so-called "crime epidemic." We've definitely improved on sentencing since 30 years ago.

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.

Well #1: yes the are. #2: drug addiction is a mental health problem (and not all drug use is addiction) and any sentence for possession is too much.

yes the are what?

#2: I completely agree.

yes theY are [still getting super long sentences]

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.

For financial crimes?

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.

Apparently in America there are huge prisons owned by private companies, traded on stock market of course. With this scenario one can quite easily imagine that incarcerating more and more inmates for maximally long periods of time could be something that is wanted and desired.

Where are you from that you don't have bloodlust for those that wronged you?

What else can you do to a ceo? Fines mean nothing.

> Fines mean nothing.

Fines can mean something, if scaled correctly:


A shorter jail sentence? Somehow I feel like there is perhaps a less harsh punishment than life in prison but perhaps worse than a fine.

These people are leveraging everything in their power to fuck over millions to save themselves money. We put them away for 5 years and they still come out billionaires in the end, why wouldn't they do it?

These people are already billionaires or large multi millionaires.

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.

A jail sentence for such a well positioned white collar criminal is probably comparable to a retreat lodge. Such an institution certainly doesn't have prison bars and a fenced perimeter because it is low security and has a special privilege.

So what - somehow somewhere someone will have the power to jail these white collar criminals for their entire life, but they don't have the power to make a 5 year jail sentence more uncomfortable?

Your objection doesn't even make sense.

Recommended listening while you read my rant: white trash anthem - blood for blood lyrics[0]


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...

> I don't think this was Robinhood's choice.

They sure made it sound like it was their choice. https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

Exactly, while WeBull firmly pointed the finger at their market makers, Robinhood is treating it's customers like children and telling us they're banning trades for our own good while secretly collaborating with Wall Street in the background. They are a disgrace to the name "Robinhood."

Tastytrade wrote very clearly that it was Apex Clearing that forced their hand.

Exactly this. They know there will be lawsuits and they know there might be SEC fines, but they are betting that those two will total up to be less than the billions it would cost them to cover a short position at $500-$600 per share.

The question I have is, can this be prosecuted criminally and can those in charge be threatened with actual jail time from this?

But I don't think they are expecting the backlash that this had received. As a Robinhood user I am making it clear that this is not okay by withdrawing all of my funds and cancelling my Gold account, and I hope others will do the same.

Citadel Securities is not Citadel Investments. This is important, because they operate on different sides of this: Citadel Securities is the market maker that is interested in Robinhood's flow. Citadel Investments is the hedge fund that bailed out Melvin. Now, whether it's good that they're connected, and up to what extent they should be allowed to is an important question.

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.

> 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.

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.

> Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup

This would be front running and is fundamentally not how citadel or other MM function.

I guess I understand where you are coming from, but they way I understand it is that RH submits a bulk order for a stock and gets a quote from the MM, which the MM thinks is appropriate. The MM then adjusts its own portfolio accordingly, buying/selling the underlying stock at its own pace.

So, more or less as described, but the order is a little different, right?

Market makers fulfill a bunch of orders, they then have until end of day to get into a delta neutral position. They prefer to trade against retail traders because retail traders are typically uncorrelated, which means that vast majority of trades cancel out (but MM still collects the bid-ask spread on the trades!). When you make markets for counter-parties that include big institution there is always a risk that the "small" trades you're fulfilling will be very correlated (because a big institution is actually breaking-up and feeding you a big trade). This is called adverse selection and will force MM to start buying to get to a neutral position (which means that the bid-ask spread they are collecting will have to be paid to some other seller).

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.

That's interesting because Ken Griffin started Citadel and has made huge investments in Melvin. Feels sketchy.

Can most brokers route trades directly through the market or use another market maker if something like this happens?

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?

> directly through the market

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.

>Citadel, and other trade executors, are refusing to buy shares for retail traders.

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.

Rumor mill says that the White House and Sequoia called RH to force their hand. Honestly, I wouldn't expect anything less. I say this because 2% drawdown of the stock market didn't happen for zero reason. It happened because these fools are leveraged up to their ass (metaphor) and the bet cost them severely. And it's cheaper to take the bad PR while salvaging your fuck up. These people act in a different set of rules and that's not okay.

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'.

> I'm concerned about this because this is a 1st amendment problem. Let grown adults gamble.

Gambling isn't even legal in most states. Good luck arguing that.

> 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.

No, you specifically said it's a first amendment problem and to let adults gamble. If it was a first amendment problem, gambling wouldn't be illegal in most states.

> No, you specifically said it's a first amendment problem and to let adults gamble. If it was a first amendment problem, gambling wouldn't be illegal in most states.

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.

The White House? This”rumor” doesn’t make any sense

The Man is pulling the strings and everybody knows The Man lives in the White House.

It makes a perfect kind of sense. Nonsense.

If that is the case, then it leads one to wonder why Robin Hood wouldn't come out and say so to avoid all the blowback they're getting. I suppose the obvious answer is that they don't want to burn bridges with Citadel.

> You pay pennies more per share

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.

This is theoretically true, but there have been numerous SEC enforcement actions based on this not happening.

The loss is provably infinite, the fine should be too.

Citadel != Citadel Securities.

Most clearing firms aren’t clearing GME or AMC anymore. It’s not just RH.

Same owners at the end of the day.

Fix: fines should be 2x more than just taking the loss on the chin.

Problem is, the losses will never really be known. Shorts have an arbitrarily high loss potential, but nobody knows how high GME would have climbed without Robinhood manipulating it down.

Then set the loss at the price where the manipulation started and add a multiplier.

The weird thing is that Citadel Securities and Citadel are different entities. Citadel Fund went to the rescue of Melvin Capital and Citadel Securities stopped the buying trades. Suspicious eh?

I think it is probably illegal but SEC fines are so light they are just considered part of the price of doing businesses. If the SEC did something more reasonable like charge 5% o revenue for a year then these companies would sit up and take notice.

Who wins from a more limited market? It seems to me suspending trades locks people from selling as much as it locks them from buying, and short sellers should be happy to have a more liquid market,not less.

According to the RH blog post they are allowing people to close their position, just not open or expand one.

wow, this is a very apt explanation.

the best financial advice I ever got was to never ignore conflicts of interest.

"... the resulting SEC fines from this illegal manipulation ..."

Plus time in prison.

in futures, your refusing to execute an order for risk management is not illegal. as well as slamming you out of stupid positions. i can only hope equities execution houses are as coherent


thanks for explaining your a hero

> Can someone help me understand Robinhood's POV?

Robinhood is a margin-lending options-trading broker. If a customer falls down on a trade, it is ultimately liable. If a retail customer loses money and makes a FINRA complaint that Robinhood induced them to buy through its gameified interface, it is liable. Risk and compliance likely made this call.

Also, Robinhood makes its revenue from market makers. They are the customers. Clients are not. So when trading these equities gets unprofitable, they will pull the plug. (Though anecdotally, everyone I know on the sell side in equities and equity derivatives is making a killing on this.)

What I can guarantee is nobody shorting GameStop got Robinhood to pull the plug.

> If a customer falls down on a trade, it is ultimately liable.... Robinhood induced them to buy through its gameified interface

Why would robinhood be any more liable than other online traders like Fidelity or etrade?

> What I can guarantee is nobody shorting GameStop got Robinhood to pull the plug.

How can you guarantee that? Robinhood likely routes most of it's trades through citadel, which has informed partners it will not be fulfilling GME or AMC or BB trades.

And it turns out Citadel is also a hedge fund that has massive short positions on GME.

> Why would robinhood be any more liable than other online traders like Fidelity or etrade?

Every brokerage house ultimately vouches for their clients.

Robinhood has extra exposure because clients could claim its interface induced them to overtrade.

> Robinhood likely routes most of it's trades through citadel

Do we have a source for this?

Also, Citadel just made money bailing out Melvin Capital. The short squeeze let them buy assets at dimes on the dollar. Assets which do not include GameStop shorts.

> which has informed partners it will not be fulfilling GME or AMC or BB trades

Former market maker. When trading got crazy we'd take profits. When it got inexplicable, we'd pull the plug. If we didn't, risk would. In this case, there is the additional factor of political risk--you don't want to be making millions of dollars off GameStop at its peak when that's going to cost you tens of millions of legal fees in front of Congress.

A simple explanation for Robinhood's behavior might be that their customers, the market makers, backed away from paying for this order flow.

All this said, I'd be highly pissed if my broker did this to me. But Robinhood customers have known since the beginning they weren't the customer.

>> Robinhood likely routes most of it's trades through citadel

>Do we have a source for this?



Citadel Securities is a market maker. Do you have any evidence that Citadel has un-hedged "massive short positions on GME"?

I find it nuts how this has transformed into a populist thing.

If you buy a share of GME from Citadel Securities, that may typically result in an immediate unhedged short position at Citadel, if they weren't already holding it.

Normally, a market maker might then close it by buying a share from someone trying to sell. But in a massively one-way market like GME, it's quite likely that they build up a large enough unhedged massive short position that they say "no, we're not taking on any more risk" and communicate that to Robin Hood.

They immediately hedge it. If the market for GME is "one-way" (it's not, people are shorting), they might also hedge the sale by buying more exotic financial instruments and correlates of the GME price.

> they say "no, we're not taking on any more risk" and communicate that to Robin Hood.

Maybe, although they would probably do that when their ability to hedge started breaking down, not when they'd already acquired massive short positions.

More likely, to me, is that they would just increase the bid-ask price spread continuously as their ability to hedge degrades.

> They immediately hedge it

This assumes continuous liquidity. Dangerous assumption to make in choppy markets.

It is not uncommon for markets to gap up or down discontinuously. You look at the market and see bid 899 at 901, buy some shares for 898, offer them at 890 and find the market is now 125 at 901.

They would have different risk profiles depending on what their clients are actually doing. RH probably has much greater net exposure than Fidelity since they have a greater share of meme investors in their customer base. Fidelity definitely has a less gameified interface as well.

Corporate risk controls are also not a hard science, different risk teams can and do come to different conclusions on the same issue.

Every brokerage house has this problem. If their client goes bankrupt, then the brokerage house has to eat the loss.

> What I can guarantee is nobody shorting GameStop got Robinhood to pull the plug.

Not sure how you could possibly gaurantee that. Also given that Robinhood edit got a huge chunk of cash from a shorter makes that pretty weird to "guarantee"[1]

[1] https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2..., https://news.ycombinator.com/item?id=25945258

> given that Robinhood got 40% of their revenue from a shorter

I'm seeing one tweet from Adam Hackney claiming this [1]. Do we have a real source?

[1] https://twitter.com/mindmeld_me/status/1354807424998281217

Yes, Robinhood disclosed that Citadel's MM desk accounted for the largest portion of their payment for order flow income in their rule 606 disclosures. But still a bad take because Citadel stands to make much more money on further trading, and Citadel's hedge fund likely has the capital to outlast retail.


Let me be clear: if I were sales at Robinhood, Citadel MM is a huge client.

But Citadel MM is more likely to pull the plug on making markets in a name for risk reasons than to benefit a hedge fund position. To say nothing of the fact that Citadel got to bail out Melvin Capital, which is traditionally a profitable trade.

I am agreeing with you that there is not much merit to a conspiracy that Citadel asked Robinhood to pull out.

In particular, I believe Citadel would gain more from continued trading on Robinhood than they would lose from their hedge fund positions.

The same shorter is making money hand over fist on market making due to increased volatility, volume, and unsophisticated investors.

Exatcly volatility is the name of the game. They do not care about the direction as long as it moves and if it moves a lot twice as good.

Market makers always win.

This is most likely the answer. They are taking on a lot of risk allowing this type of trading behavior. They likely don't have suitable risk infrastructure developed to feel like they have a handle on it, so they shut it down.

If it was the answer, then RH could have instead only forbidden margin trades and restricted to cash.

Additionally, other retail brokers selling to Citadel Capital have done the exact same (Schwab comes to mind, but not only).

Other brokers however (fidelity), have not. If the short squeeze is to happen tomorrow, this seems an unlikely coincidence that those retail brokers affiliated with Citadel Capital tool positions that would ultimately deflate the stock.

I don't see how GP can assure that no short sellers is behind those moves.

Why can't they just stop the people on margin from buying gme? That would be reasonable. But if it's your money, I don't see how it's risky for RH.

> if it's your money, I don't see how it's risky for RH.

FINRA arbitration, and the FINRA complaint process, is highly sympathetic to retail clients. When these clients lose money on GME et al, there will almost certainly be a class-action lawsuit for some fraction of their collective losses. And Robinhood's lawyers will almost certainly recommend they settle. That is the risk, beyond margin lending and options settlement, they are seeking to mitigate.

(Also, when that money is lost, there is a decent chance Robinhood will be fined by half the regulators on this planet for inducing people to overtrade through its gameified interface or something like that.)

RH makes money by selling data to investment firms, not off individual trades/fees.

If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business they could pull the plug[0]. Or if this prompts regulators to examine RH and similar products.

The risk isn't in the outcomes of options/trades; its risk to their business model.

[0] RH's customer are actually market makers, who by and large will be profiting heavily off of this.

> If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business

This point has been made repeatedly elsewhere but it bears repeating. Market makers are getting rich off this trading. Robinhood's customers are not hurting from this.

Point taken.

Still, as far as risk to RH is concerned - if this kicks off a change via their customers, regulators, or legal action the change is probably not in their favor.

One issue is a lot of retail people bought GME options. If those expire in the money, these people will be on the hook to buy 100s of shares of GME and likely don't have the cash on hand to purchase the shares (which leave RH holding the bag).

On one hand, you could say RH shouldn't let people buy options if RH doesn't believe those people can pay up when the option expires. On the other hand, you have people buying options who maybe don't understand that you need cash to buy the shares if the option expires in the money.

If you bought options, you don't have to exercise them. They could expire worthless.

That's whay Schwabb did and what any serious broker would do if there's volatility. If you have cash you should always be allowed to play if you are not doing anything illegal. If it's dangerous, it's your cash not theirs.

Robinhood takes on a lot of risk when their customers buy GME?

The risk to Robinhood is GME crashing by more than the amount of the margin. A large brokerage that has been through crashes before has systems in place, and can spread the remaining risk around. If a large portion of your customers are invested in a handful of stocks, their risk becomes your risk. Also, other customers of Robinhood who have cash that is in an uninsured account are also at risk even if they are not invested in GME.

Then why not shut down margin purchases of GME, but not cash purchases?

There was some speculation that they didn't have that capability. Brokerage firms should have the ability to restrict margin trading in particular stocks, but what if Robinhood couldn't, at least not on short notice?

There could is also the concern about new accounts trading in GME with funds that might be suspect. It's a risk you don't want to take if you don't know your customers and the bubble is ready to burst at any moment.

They did shut down margin trading in GME and others several days ago, this is a further step atop it.

Did they issue margin calls?

It does because they let them buy on margin.

Interactive Brokers hiked the long margin to 100% (and short to 300%) which is a reasonable way for a broker to behave.

Killing the ability to buy is not.

IB doesn't allow you buy GME even w/o margin account.

I don't think that is correct. They stopped options trading in it not 100% cash backed stock buying or 300% cash backed shorting. I think their position is fairly reasonable and as an account holder there I don't want people going crazy on leverage on this amount of volatility.

That's what they advertise via Twit. But if you try to buy even 1 stock of GME on non margin account (our own money only) it doesn't allow you to do that. I have a screenshot for that if you want. And customer support line is overloaded as expected.

Got email from IB that you cannot open new positions on GME this morning.

Probably not even long positions and probably just purely for liability reasons to stay away from the mess when shit hits the fan

ok that is unfortunate I didn't go all the way through with trying to actually buy. I'm a long time customer and they were definitely better before they went public

aggregate customer exposure means that massive simultaneous losses by retail traders following the herd can mean losses for RH, which they want to prevent.

Even when they're not buying on margin GME is in a short term bubble that will soon pop and leave millions of their users worse off than before. There probably was some internal logic of "protecting" folks from themselves whether we agree with that or not.

Did they stop people from selling in March when the World was panicing about Covid, despite most people assuming the stock market would rebound?

The answer is no.

> most people assuming the stock market would rebound

No, people / pundits / the media were widely proclaiming that the healthcare system would be overrun and the next great economic depression was upon us. Most people assumed the stock market would continue to fall.

Quite a bit of difference from markets being influenced by outside events and the market being influenced by your gamified platform.

Buy high, sell never. Everyone who bought the stock has already written it off as a complete loss. Everyone is banking on being worse off than before. They still buy it for the entertainment value and Robinhood denied them that.

> Robinhood is a margin-lending options-trading broker. If a customer falls down on a trade, it is ultimately liable. If a retail customer loses money and makes a FINRA complaint that Robinhood induced them to buy through its gameified interface, it is liable. Risk and compliance likely made this call.

This is a very tenuous argument. By law, options customers in the US have to receive an information packet and accept an Options Agreement, wherein it's clear that they could lose 100% of their premium outlay (or more). Options trading is approved based on levels; not every account can buy options, and not every options account can sell naked options.

If we are assuming good faith from RH, maybe they are trying to prevent margin-call suicides. But I don't assume good faith from RH.

Not to mention that they turned off all opening trades -- not just large trades, margin trades, or options trades.

Robinhood didn't pull the plug. Tastyworks did the same and they said they were more or less forced by Apex Clearing. Here is CEO of interactive brokers also admitting to the reasons: https://www.youtube.com/watch?v=7RH4XKP55fM

You could also imagine that they have concern about the volume causing issues on their servers. A literal thundering herd might mean owners of GME can't sell during the collapse which would put robinhood in a bad situation

> A literal thundering herd might mean owners of GME can't sell

I can assure you there are very few cattle, bison, or caribou near the exchange.

I strongly dislike nits like this. I don't think this clarifies what I was saying or provides any value. I also don't find it humorous.

While writing, I was thinking of the thundering herd problem and imagined that individual users is more literal (than many processes), more like the thing for which the problem was named.

If I'm not not mistaken, I think you can also refer to a group of humans literally as a herd. But I very rarely think such prescriptivism (saying one should not use terms inappropriately) provides value, especially on a word that is so far past being used correctly with any consistency.

Hedgefunds are real Robinhood customers buying their order flow. They go belly up Robinhood looses their actual source of income plus Robinhood lent them a ton of stock to short so they are on the hook too.

> Hedgefunds are real Robinhood customers buying their order flow

Market makers buy order flow. Hedge funds don't. The only major hedge fund affiliated with a market maker is Citadel.

Melvin and Citron placing shorting GME is an anomaly in the hedge fund world. Most institutional short views are expressed through options and structured products. (Market makers convert those options into shorts, the same way they convert calls into stock purchases.)

Market makers are making tonnes of money on this. It's the low-information non-directional trading their models are built for. (Source: former options market maker. My former colleagues are making annual targets in a week.)

Some hedge funds are getting screwed. But that is mostly over. Few funds' risk tolerances let them extend a 10x loss on an outright short. With respect to their puts, their maximum loss is the premium. That's generally baked into the risk model ex ante.

The only sophisticated parties holding the bag are brokers. Margin loans at risk. Uncovered options sales at risk. Most significantly, when the scheme inevitably crashes, almost-inevitable class-action lawsuits from clients claiming to have been misled by their interfaces.

>Market makers are making tonnes of money on this. It's the low-information non-directional trading their models are built for. (Source: former options market maker. My former colleagues are making annual targets in a week.)

Aren't these market makers sitting on a ton of stock to cover call positions?

They may have picked up a lot of pennies these last two weeks, but the bulldozer is getting bigger and faster. This is a truly unprecedented situation and I doubt they have confidence that their models can handle it.

Market makers aggregate their risk exposure across all of their holdings and put limits on how large those exposures get.

> Aren't these market makers sitting on a ton of stock to cover call positions?

The whole purpose of delta hedging is to make them immune to the first-order effects of market moves. The first-order derivative of the value of everything they hold with respect to price moves in any one stock is constantly kept near zero.

In the old days, many options traders would put off hedging their books until near the closing bell. Smart equities traders would watch the options market to see which way the traders would be rushing to hedge in the cash equities market. These days, there are systems that automatically hedge out the positions throughout the day.

And Citadel is responsible for 40% of Robinhood revenue and oh surprise Citadel is in the hole on the money sunk into Melvin.

> The only major hedge fund affiliated with a market maker is Citadel.

How many shares of Melvin Capital were bought by Citadel when they injected $2.75B? Is there a way to know how exposed they are?

Isn't there a conflict of interest in them floating a hedge fund losing money due to flow orders they are buying (or, potentially, not buying anymore)?

So as a platform Robinhood wants to make money from trading options, but it will shut down the platform when it sees too much risk for itself? If so, would this damage the trust to Robinhood?

Yes but

a) most of the platforms are doing the same

b) it's hard to imagine that with half of RH currently holding GME they're not going to come out of this having gained more in users than they lose over trust issues

So FYI, the Reddit WSB "shutdown" was temporary and on purpose (by the mod admins) to clean up the page a bit. It was private for an hour or two and back up.

Discord, not so. Looking at the financial backers of Discord, you can pretty quickly draw a link to the short sellers. Presumably some phone calls or dinners were had last night and strings were pulled to shut the discord down.

What you are describing would be Discord engaging in (potentially illegal) market manipulation.

This will be somewhat difficult to prove because the WSB discord (for the hour I was in it) was more or less a walking terms of service violation, near totally consisted of "ironic" racial slurs and "ironic" racist memes, n/f-word everywhere.

It was clearly taken over by folks intending to have it shut down because it did not look like that prior to this GME bet gaining media attention. There is a lot of extremely questionable things happening around this event leading me to think that some very wealthy people are trying to prevent their shorts getting blown up at all costs. Even on HN I’ve been seeing weird posts on these threads.

>It was clearly taken over by folks intending to have it shut down because it did not look like that prior to this GME bet gaining media attention.

That's one theory. Another would be that the gaining media attention caused an influx of users to join a group that equates itself to 4chan, causing moderation issues.

WSB is about the memes, I don't think it's at all similar to 4chan (especially not /b/) and I think it is dangerous for you to assassinate the character of the community in such a dismissive way.

I'm not personally associated (not a member on the boards) but I've seen a lot of discussions float my way over the years and if it became that way now it's unlikely to be from 4chan itself (or a community like it).

But your insinuation here gives credence to many that the internet is eating itself, when it's much more likely to be manipulation from those who stand to lose.

Their tagline is (or was at least) 'if 4chan found a bloomberg terminal'.

I say this as someone who frequented both communities at one time or another: they are very very very alike. I wouldn't be surprised if this who thing is a charade to take money from 'normies' as much a wall street.

Ive been watching the community for atleast 4 years now, and for the most part it's is just random people that use options to gamble (i.e. wild shots at trying to make money but they do have some knowledge). Either way, while terms like retard, autist, and gay are used frequently I've yet to see any racism or any xenophobia whatsoever in the community. And any insinuation of it is usually shut down fast. And While they use that mantra I think WSB is very unlike 4chan (although my exposure to 4chan is extremely limited) and its racism/hate speech.

I don't think "While mocking people with disabilities and homophobia is frequent, I have yet to see any racism or xenophobia" is the defense you think it is.

> I don't think "While mocking people with disabilities and homophobia is frequent, I have yet to see any racism or xenophobia" is the defense you think it is.

I think that it's a bit of a stretch to say that the language they use means they're mocking people with disabilities or homophobia. Using words ironically just to be edgy is completely different from believing others to be inferior or an invasive entity to be defended against. That's very apparent when you talk to, say, an angsty teenager versus an actual ethnonationalist or even just your garden variety civic nationalist.

They might use the same words, but mean them in completely different ways, and actually be expressing very different things. I think that as it pertains to the internet, certain dialects of edgy, slang filled english are as close to a global lingua franca as can be considered possible. You can't paint all of these people with the same brush. Aside from speaking the same dialect of english, they use it to express very different thoughts, no less diverse or varied as those who speak other ones. This nuance will get missed if you overliteralize what they say and take it at face value.

The defense is "while there is mocking of disabilities and gay sexuality, there is not racism and xenophobia". Regardless, its in good fun. There is no intention of actually disparaging those groups. There are plenty of posts about donations to Autism research and other charities.

Stop moving goal posts its a bad look.

I don't think anyone is moving goal posts. The people who think those words aren't ok have never cared about intent or whether or not you've donated money to the cause.

Yeah, I read my comment and thought about it, and I fully understand that those words are not acceptable but I feel like its not as severe and most of the time they are calling themselves gay and such, but I fully understand that it still is unacceptable.

This is how 4chan started as well - there's then a steady progression from the ironic mode, to ironic "racism", to ironic racism, to "ironic" racism, to racism.

WSB on Reddit had moderators. WSB on Discord, I'm not sure they could keep up.

WSB Discord had an auto-mod, but their claim was that it was circumvented with people alternative characters to post slurs.

I think it's similar to old school 4chan, mostly chaotic neutral in alignment. Today's 4chan is little more than a far-right forum.

This one is probably closer to my guess, it would be difficult to moderate half a million new users in a day with an existing mod base, and you can't really just hand out permissions to random memers saying "I'll help moderate" without risking that some nonzero amount of them will just cause havoc anyway.

Yes. The only thing I'd suggest is to call for volunteers from "sane" subreddits that seem to have a good moderation policy and reasonable moderators.

The problem there is that the above people are already likely quite busy, and don't want to take on an additional (unpaid) burden by trying to clean up a sub they don't really care about.

Eh, that blatant offensive nature is a 4chan holdover, which WSB proudly embraces. Plenty of millennials are former /b/ browsers, now in their 30s and some with plenty of disposable income.

I've struggled with this in some friend groups, particularly after having a child diagnosed with an autism spectrum disorder.

So "it was funny until it was relevant to me personally, then it wasn't"?

Strong moral backbone ya got there.

You've just described the premise of growing into an adult. Congratulations.

Not really? Children frequently demonstrate the same behavior. Laugh at the kid with X problem until you have a problem yourself, and now you dislike bullies.

Growing older and realizing in general that things you did when you were younger are bad is fine and dandy, and indeed is "growing up".

But only deciding things are bad when they personally effect you has nothing to do with growing older and is not a good look. It's just selfish myopia.

Being an adult with a consistent moral framework is about being able to say "this is right or wrong", regardless of if it effects you personally or not. If you only notice something is bad when it happens to you, then that's basically what kids do automatically.

Adolescence vs adulthood is the timeline here.

Consider this: you read this anecdote and thought “I’m going to belittle this guy.”

Says a lot about _your_ morals.

Huh, that's strange, because the comment I read said:

> ...particularly after having a child diagnosed with an autism...

Which to me says the dichotomy in particular is "before autism personally affected me" and "after autism personally affected me".

Calling people "autists" as a joke is either problematic and worth calling out or it isn't. You being personally affected doesn't change that. At least that is what I would argue is required from a consistent moral framework.

Don't think that says much about my morals, just that I like them to be consistent / not myopic.

Think about the thread we're posting in. This is basically about a company/industry that was like "these retail investors don't need protecting, they're adults and can make their own decisions, even if it means losing money", until those retails investors started costing them money with their adult decisions, at which point they change their mind and decide "actually they need protecting from themselves".

The way you phrased your comment, it sounded like you did the same, just swap out financial shenanigans for name-calling.

> I've struggled with this in some friend groups, particularly after having a child diagnosed with an autism spectrum disorder.

Can you elaborate this some more? Are you saying that you've struggled with this because people take that 4chan attitude they grew up with into their IRL lives and are assholes to your son with ASD?

What needs to be elaborated? Question feels voyeuristic.

Figuring out just how they're assholes in real life helps understand and contextualize the problem better. Are they oblivious, or dropping offensive memes at his kid, etc?

Does it really matter? If you reach your mid-30s and haven't figured out that mocking someone with ASD is wrong, I'm not going to waste my time educating you. I'll simply cut you out of my life, gradually or all at once.

The royal "you", not you specifically.

?? I asked the question more because I was just curious if there are legitimately like mid-30 year old groups of friends that haven't grown out of this "4chan attitude" of using the n-word, calling people "autists", etc.

I didn't ask out of a sense of voyeurism. More like a, "dang, is this something I need to watch out for when I get older?"

This is precisely it. A willful ignorance when referring to awkward people as "autists" along with tasteless WSB quotes.

Essentially, yes. Whether it's playful or not, a lot of the memes on a place like WSB are incredibly demeaning.

Cheers. And yes, I'm totally aware of how awful and toxic those parts of the internet are, but usually those toxic and awful people hide it more when you talk to them in real life.

I’ve found many who are very outspoken in these communities have little to no filter in real life.

most of that is self aware deprecation from other autists. frankly being able to joke and shittalk with eachother makes it a lot easier to deal with having autism and everything that comes with it.

However Discord would have known about this "bad" behaviour for a long time and it wasn't a coincidence that they finally decided to apply a ban hammer, so it's a very weak cover story. Also, racial slurs? You're the first I've heard of racist slurs - I had only heard of people calling themselves/the group retards and autists - meant in an endearing, self-deprecating humour kind of way. I've seen no instances of racism on /r/wallstreetbets - I really doubt on their Discord they'd be allowing racism though.

As usual, the ToS are applied selectively, serving merely as a justification for arbitrary behavior.

It's just so blatantly obvious. It reminds me that the final layer of competition is governance, and these "unicorns" funded by the VC-finance industrial complex are going to lose out in the end when eventually good actors come into play.

For the several years I've been following, I've never once seen the n word or anything close to racist memes.

They do make a lot of autism jokes (mostly pointed at themselves) and plenty of f bombs, but neither of which is generally seen as ban-hammer-levels of problematic (whether or not it is is up to you)

Are you certain? I haven’t seen a single racial slur on r/wsb. I’m sure there are plenty of r/f-s but I have seen any n bombs.

I legitimately don't know which f-word you're referring to. This is where we are.

The bundle of sticks



If that's the only criteria lot of social media sites would get hit


> Looking at the financial backers of Discord, you can pretty quickly draw a link to the short sellers.

Mind elaborating on this?



  Discord has had significant investment from private equity funds including FirstMark Capital, Greenoaks Capital Partners, Index Ventures, IVP, Greylock Partners, Benchmark, Accel, General Catalyst, Ridge Ventures, Spark Capital, and Tencent Holdings. At least one of these firms has invested with Point72 Ventures, which recently helped Melvin Capital.

The connection is pretty conspiratorial. By that logic every company in the valley could be heavily influenced to shutdown products for different people if it as any connection to a VC (which is pretty much every company).

I think discord probably made some calculations on its own as opposed to pressure from Melvin/Point72. Though in this day and age it seems that the truth ends up being stranger than fiction.

> By that logic every company in the valley could be heavily influenced to shutdown products for different people if it as any connection to a VC (which is pretty much every company).

Well, yes...?

Love how often these comments just boil down to straight denial. "This couldn't possibly be happening!"

Exactly. These companies are losing literal billions. Actual wars in real life have been fought over less. Yet they couldn't possibly be exerting any influence over the companies they own. That would be illegal.

And they would surely be caught and word would get out if they did do it.

And then what? Will they be fined even half of what they stand to lose? Or be fined a "record-breaking" 5 million

Surprise also how much conspiracy is being upvoted here.

Well, we are discussing market manipulation. Which can be considered a conspiracy crime, right?

I think you've gotta take selection effects into account. The deep comments section of the Nth Robinhood/Gamestop post is going to be disproportionately full of people who are unhappy with Robinhood and willing to believe lots of nasty things about them.

Which then has a spiraling effect in that other disaffected people will read those comments and believe what they want to believe. Similar to the conspiracy theories in the election. However I do think there has been some super shady stuff done with robinhood that doesn't take that much to believe that there is a conspiracy/collusion is at play. It's hard to believe that they are altruistically de-risking their clients when they sell doge coin.

those are all silicon valley investment firms. they don't have any kind of direct relationship with hedge funds that specialize in short selling.

this is essentially saying "discord has investors, and the stock market also has investors, so they're colluding". there isn't a real connection here

So your telling me that 0 of the partners in those SV firms above have the phone numbers of 0 these short selling hedge funds partners in their phones right now?

I'm on the fence whether someone influential actually called the CEO of Discord and asked to have it shut down. I'm 99% certain these people know each other. It's not a could the call be made its more of a was it made.

I never said this wasn't possible. though it's just as likely as anyone calling anyone.

practically, short selling hedge funds and silicon valley investors don't run in the same circles. yeah, they're socially connected but they have separate networks and cultures. conflating the two because they both involve investing isn't accurate

>though it's just as likely as anyone calling anyone.

That's a stretch. I think the point here is that some parties can save billions of dollars in losses, and makes them a little more likely hypothetically. Im all for dealing with the facts, but the facts are just looking at the '08 crisis a lot of Wall st funds have a track record of bending rules for profit. It's not out of this world to imagine 12 years later that the same culture exists

Don't they all have the same LPs?

Behind all of these nefarious entities is CALPERS, etc. just trying to keep your pension fund solvent.

The theory is that Discord’s investors are putting pressure on them to shutdown the wild & crazy investment decisions they don’t like. It’s hard to say what is actually happening.

One of Robinhood's main business partner is Citadel (RH sells their order flow to Citadel). Citadel is also the firm that has bailed out Melvin Capital, one of the hedge funds that took a huge short position in GME.

Probably just a coincidence.

I follow the bitcoin crowd a bit. Everyday they issue claims like 'bitcoin was made to free us from wealthy people games' it felt echo chamber / tinfoil at times. This isn't hurting their theories.

Wealthy people games exist in bitcoin as well. Especially now with all the institutional investment and futures markets. I say this as a long-time bitcoin fanboy as well.

It is not the same. Wall Street is playing with other people money mostly pensions and funds borrowed from the state.

This is the only relevant thread in this ongoing class war.

Fine, it's not on the same level, but it sure does fuck with the crypto markets.

yeah can be to

They're right that wealthy people game the financial system.

They're insane (or self-interested) to pretend the same doesn't happen in cryptocurrencies.

maybe, were crypto exchanges forced to stop trades before ?

Crypto exchanges going down during times of high volume is definitely a thing, yes. For example:


> During the recent bitcoin bull run, Coinbase has struggled to keep itself up during stretches of heavy volume, leading to snarky comments on Twitter and Reddit that it’s only news when the exchange doesn’t go down during peak periods. Given the exchange has filed preliminary documents for a public listing of the company’s shares, fixing its infrastructure has undoubtedly taken on an even greater urgency.

Going down is one degree lower than officially displaying a 'you cannot buy <security>' on your app. I know DDoS smell bad but it's not the same. And mind you I lost profits on the latest DDoS.

Coinbase suspended XRP. Not a perfect comparison, but perhaps closer to what you're referring to.

It was due to the SEC, not unofficial influences.. I think it's a different topic

Don't forget that crypto exchanges have none of the properties of cryptocurrencies themselves, in terms of censorship resistance and cryptographic guarantees. Since fiat currencies are involved and these are businesses operating in countries with laws, they have to enforce whatever the government wants to require of them. They can absolutely halt trading, or freeze funds or assets on their platform at any time.

DEXes, however, can be designed so that no person can halt trading or freeze your funds (usually you trade out of your own wallet anyway). A DEX is just a computer program running on the Ethereum blockchain. Once deployed, the blockchain is immutable, and it just sits there accepting orders.

This is just shifting who's getting the unreasonable, unnecessary transfer of wealth weighted towards the earlier adopters.

I keep seeing this pop up everywhere; Citadel != Citadel Securities

You keep saying that but they are literally sub companies of the same larger conglomerate. Their CEO and founder is the same person, he is also both of their primary shareholders.

Same group of companies, the distinction is completely irrelevant.

One’s a market maker + bank, one’s a fund. I understand it’s against the grain to hold this opinion, probably because it’s inherently not conspiratorial, but they do different things and regulated/managed entirely differently.

They are still owned by the same group of people, with conflicting interests: one side supports a trading platform, the other side just bailed out a moribund fund and needs to make that money back.

What side do you think wins given the huge hole left in Citadel after propping up Melvin?

Companies do not make decisions. People owning these companies make decisions.

Mitsubishi Electric != Mitsubishi.

And Alphabet != Google! /s

The way to make money in a bubble like this is to sell right before the pop.

At some point the word will go out that it’s over—“we won”—and everyone will rush to sell their GME and take profits.

It’s not possible for all those people to succeed. Broker apps like Robinhood will be absolutely overwhelmed with sell orders, many of which will run into technical problems and/or no counter parties. A lot of people are going to be pissed off and blame the brokers.

People buying in late will have the most to lose and maybe the least understanding of what is going on. I mean, this story was a “breaking news” red banner on WashingtonPost.com yesterday. Not everyone buying GME today understands the social movement /r/wsb angle.

Ultimately brokers are worried about getting sued by people or companies who lose a lot of money in ways that will look preventable in hindsight.

Edit to add: the 2008 financial crisis was caused by financial firms selling a lot of crazy mortgages to people who could not afford them unless housing prices went up forever. When the crisis hit, the firms got the blame, not their customers. Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.

>Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.

What a dismissive, awful, terrible way to phrase this.

Having parents that were nearly the victims of one of those upside down mortgages, it's not that simple. They didn't ask for a 400k mortgage. They asked for a home they could afford. When the bank, that they have trusted their entire life, says, 'you can afford this much per month', they had no reason to question that.

They're unsophisticated people, who trusted the system not to fuck them. And that's precisely what it tried to do.

While I get that people need to take control of their own money, when the people responsible for looking after your money, the actual, literal bank tells you you're good, why wouldn't you believe them?

> when the people responsible for looking after your money, the actual, literal bank

The bank doesn’t have a fiduciary duty to mortgage customers.

If someone wants someone responsible for looking after money and large purchases, they need a fiduciary financial advisor, not their bank.

The fact that people think the bank is supposed to look after money is part of the problem. The bank is just a vault. Not only are they not responsible for helping someone pick a mortgage and house, they aren’t even competent to do so.

I can’t imagine some retail bank even employing people who could competently assess individual debt/income ratios.

The training is that individuals should have financial literacy enough to know what banks do and don’t do well. And to recognize cross-marketing.

I knew tons of people who made dumb decisions in the 00s and bought way too much house. The bank letting them was part of the problem. But people being stupid was a big part too. I knew families making $50k/year buying $400k houses and refinancing every six months for cash out to pay the mortgage. The bank shouldn’t have done that. But people were really stupid to do this once much less multiple times.

Loughla is right, it was reasonable for customers to trust their banks on scoping a mortgage. Not because of some technical fiduciary status, but because banks had a history of being conservative with mortgage underwriting, and because it would seem to be in the banks' best interest to be conservative with mortgage underwriting.

But some banks thought they could lower their underwriting standards and get away with it because they could shift the risk to larger financial entities by selling the mortgages. And a lot of non-banks got in on the mortgage underwriting game for the same reason.

And bank customers liked it. Who doesn't like to be told that you're in better financial shape than you thought? That should be good news.

My point above was not to defend what banks did, but to point out that, even though banks were in the legal right to lower their underwriting standards, it did not work out well for them or their customers (or anyone else, really). And a lot of the downside came later, in the form of bad reputations, burdensome regulations, etc.

Most buyers didn’t get mortgages from their retail bank, they got them through mortgage brokers.

Maybe there were lots of hapless old people who were misled by some bank they mistakenly trusted for years.

I don’t think so, the many examples I personally knew from that period were getting loans from specialized banks that set up mortgage shops, like Washington Mutual.

The book (and movie) The Big Short digs into this how regular people were overextending.

To clarify, the banks were bad actors by offering and participating. But reasonable people were avoiding the situation until the whole system tipped over. Someone borrowing at 40% debt to income or higher should never have done that, even if they trusted their local banker who was saying it was fine. Finance requires personal responsibility and people need education to help make these decisions (and they shouldn’t get this help from someone with a vested adversarial financial interest).

> I can’t imagine some retail bank even employing people who could competently assess individual debt/income ratios.

They would have terrible sales numbers and get fired in the first month. Wells Fargo's training was that the more financial instruments a customer had with the bank the better.

I understand you. Many of the people seeing news stories or social media posts today about buying GameStop are also unsophisticated. Brokers may be thinking it is in their self-interest to not just execute every buy order in an obviously inflated stock.

If you agree that a bank should engage in paternalism and tell people what they can and cannot afford then why shouldn't Robinhood also engage in paternalism and tell people what stock they can or cannot buy?

> Broker apps like Robinhood will be absolutely overwhelmed with sell orders

Shouldn't be possible. Most of the messages to the orderbook, by orders of magnitude, would be market makers doing add/cancel, which isn't something that comes from RH anyways.

How often is one particular user going to send in an order? 10 times a day if they're particularly busy? Doesn't touch the sides. The internet facing gateways can be scaled up easily if that's even needed, they aren't latency sensitive. The inside towards the exchange can be made extremely fast.

I've built systems that do this.

Robinhood experienced several outages in March 2020 because of large volumes of trading.

[1] https://www.cnbc.com/2020/03/09/robinhood-app-down-again-dur...

A system could be built to handle this. Robinhood's likely hasn't been considering the notable outages they've had.

I'm on schwab. I had a hard time executing my sell. Luckily got it around $450 haha. But only 1 share for fun. I think I had to try like 8 times for it to go through. I also had a hard ish time canceling pre-market limit orders.

> caused by financial firms selling a lot of crazy mortgages to people who could not afford them unless housing prices went up forever. When the crisis hit, the firms got the blame, not their customers.

This is not totally correct.

2008 was caused by banks giving out extremely risky mortgages (the banks knew they were risky mortgages) and then packaging them up into giant bundles and magically calling them AAA stable real estate investments and selling them forward to other banks/pensions/401ks.

Banks are responsible for assessing the risk on a mortgage, not the customer.

> many of which will run into technical problems

If a broker has a technical problem processing a trade, they deserve to be blamed.

Seeing a comment like this on HN shows the risk here. If people here don’t understand the difficulty in scaling to meet huge spikes in demand, how are ordinary retail investors supposed to understand it?

It’s one thing to handle “a trade.” It’s another thing to handle everyone trying to trade at exactly the same second. We already saw broker apps have issues this week just on handling the buy volume. The sell volume will be far higher.

And I mentioned counterparties too. Even if the technology works, you can’t sell if everyone else is selling too.

I spent many years building exactly this technology. It's hard, but it is (or should be) table stakes for the industry.

The risk of not finding a counterparty to which to sell is different - and real - which is why I did not disagree with that aspect of your post.

Multiple online brokers had outages this week and blamed volume. Whether or not it should be possible, it seems possible.

Didn't Parlor just get shutdown because they did not moderate their user base comments fast enough?

If we hold a social media company liable for not being able to scale fast enough shouldn't a company offering financial services be held to at least that level of standard?

>When the crisis hit, the firms got the blame, not their customers. Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.

Maybe it wasn't intended, but this comes across as particularly harsh victim-blaming.

Yes, the firms got some blame (and a bailout), the customers lost their homes.

Edit: I now see the retraction/clarification you just posted to another commenter. Cheers.

> Not everyone buying GME today understands the social movement /r/wsb angle.

I mean read the top comments in the top WSB posts today. It ain’t about sticking it to the man. It’s about making money, fast.

Agree. My cynical mind like to think that there are a lot more people there who just want to make a quick buck and maybe get rich quick. Those people, who most likely bought GME early on, are hyping up the "hold strong on GME" motto and they will silently leave the fools to hold the burden. Whether it's sticking it to the Wall Street or not (actually, it's only affecting maybe a handful of hedge funds on Wall Streets; the big guys on Wall Streets are probably making a lot of money from this "movement"), A LOT of average Joe's will lose money here as well.

> When the crisis hit, the firms got the blame, not their customers. Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.

That is a pretty gross oversimplification and completely dismisses the variety of "companies" that had a hand.

Subprime lending was just the foundation, but it took investors to investors to buy those securities, and ratings agencies to assign favorable risk ratings to those securities.

>People buying in late will have the most to lose and maybe the least understanding of what is going on. I mean, this story was a “breaking news” red banner on WashingtonPost.com yesterday. Not everyone buying GME today understands the social movement /r/wsb angle.

Actually that is impossible. This is a short squeeze. If you forget to sell your share then the short sellers are fucked because they still have to buy yours.

I know there's a lot of conspiracy around wall st screwing over the little guy here, I suspect the truth is more mundane. When the music stops a LOT of people will be left holding the bag and will lose a great deal of money. There are people putting their parents life savings into GME at $300/share. It's insane, and nothing but pure gambling at this point. I suspect regulators are extremely concerned at the risk people are exposing themselves to.

While you're right that eventually the music will stop, this thread is about direct intervention. There isn't a way I see that the intervention protects retail at all. By its nature it ensured a full crash and retail didn't see it coming.

A full crash is ensured by the fact that the stock is massively, massively overvalued. If they are taking steps to prevent it from becoming even more overvalued, the upshot should be less money getting lost overall.

Possibly, you are only part of the crash if you have to buy at the top which, from my understanding, would be the short sellers as it is driven to a 1 time spike. There would be bag holders from not having limits set correctly and all but that's the risky play.

Doing this way ensures that retail loses, 100%. Only a retail app was blocked.

It is the asymmetry, I can't see a valid reason for unilateral action from RH here.

I don't see this ending well for (some of) the Robinhood crowd. Wall Street has deeper pockets. Robinhood manages $20B in total. A small-ish hedge fund has like, a few billion dollars AUM. There are many such hedge funds, and a couple dozens much larger ones.

A couple funds with large short positions have popped, but short interest hasn't budged; they were just quietly replaced by other funds. At this point probably every hedge fund who trade equities is short GME. If your position is not too large and you have enough cash you can just keep meeting the margin calls and collect your free money when the bubble bursts.

(And stop loss orders don't save you if the crash happens fast enough.)

> At this point probably every hedge fund who trade equities is short GME.

I agree. Anybody who doesn't think that the algorithms have locked onto GME is stupid or hopelessly naive.

You're not punishing Wall Street, they've already priced you in and are waiting to take all your money.


"One of these days in your travels, a guy is going to show you a brand-new deck of cards on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, do not accept this bet, because as sure as you stand there, you're going to wind up with an ear full of cider."

One possible legitimate reason is the risk to Robinhood themselves. They allow margin trading and I think anybody would agree that buying GME at these crazy prices on margin is incredibly risky. If the traders can't pay, Robinhood or their bank/insurers are on the hook. Also even though the narrative here is Robinhood traders vs hedge funds, surely there are also a lot of shorts on Robinhood too, so there's more margin risk from those too.

However why not just disable margin trading on these stocks instead of shutting them off altogether? I don't really know enough to say. Maybe there are additional risks somewhere unrelated to margins? Or maybe the upstream market makers are forcing their hand. Or maybe it's some combination of reasons, including pressure from people who are on the losing sides of these bets.

> Why should Robinhood pick a winner (siding against their own customers)

As others have often pointed out, Robinhood is in some ways analagous to social media companies. Their end users are not their customers, because it's a free service. The customers are the businesses on the other end, in Robinhood's case the market makers who are paying for the right to front-run trades. If this is no longer profitable for them due to crazy volatility, they can apparently stop allowing trades at any time.

> The customers are the businesses on the other end, in Robinhood's case the market makers who are paying for the right to front-run trades.

Front-running is super illegal. You're referring to payment for order flow (PFOF), in which a sell-side party like Citadel pays Robinhood for the right to route your order to the exchange. But there's a catch: Citadel is allowed to take the other side of your trade without routing it to an exchange, but it legally has to match the exchange price or cut you a discount. If Citadel can't do either, your order MUST be routed to an exchange.

PFOF makes up a somewhat negligible source of revenue for no-fee/discount brokerages. The bulk of revenue comes from a much more mundane source: interest rate spreads. Earn X% interest on customer cash deposits while providing customers less than X% interest on their deposits.

If your order isn't making its way to an exchange, PFOF isn't your problem, and you shouldn't be day trading. Your real problem is that the professionals think you over-bid/under-asked to such an extent that they're willing to cut you a deal just to take the other side of your trade. Unless you're a professional options trader, betting against professional market makers will cost you a lot more money than the imaginary transaction costs would have.

(This is just a summary of an old HN favorite: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...)

> Or maybe the upstream market makers are forcing their hand.

I'm not a lawyer, but to me, that seems like it would be very very illegal.

I agree, with how much regulation is there is in every other aspect of the markets, I am surprised there is not more explicit process around just shutting off trades they don't like.

> However why not just disable margin trading on these stocks instead of shutting them off altogether?

Yes... or simply increase the margin.

Well I think we're in such uncharted territory here that it would be difficult to trust any risk model, so just increasing the margin may be hard to get right.

From Schawb

“It is not uncommon for us to place restrictions on some transactions in certain securities in the interest of helping mitigate risk for our clients,”

from Massachusetts secretary of the commonwealth

“It is very clear to anyone looking at the numbers that the whole marketplace is being manipulated here,” he said.

I imagine Robinhood's thinking is similar

> "It is very clear to anyone looking at the numbers that the whole marketplace is being manipulated here"

I don't get this.

I didn't know anything about short selling a few days ago and maybe now is a bad time to learn... but my understanding is that short selling is only legal because it disincentivizes bubbles caused by artificial overestimation of a company. Investors took it too far and short sold over 100% of the stocks in a company, ironically creating ideal conditions for a bubble. As soon as GameStop's stock turned upward, the rampant short selling resulted in a demand for more than 100% the supply of GameStop's stock, resulting in a meteoric rise in price.

But how is this market manipulation? The rise in stock price has nothing to do with an artificial overestimation of GameStop's value. It's just fundamental supply and demand. If anything, the short sellers are the ones who manipulated the market when they started shorting over 100% of the stock supply.

Like I said, I'm a complete noob when it comes to the stock market. Maybe I'm misunderstanding something?

No. You aren't misunderstanding anything. That's exactly what happened.

The "problem" here, is that the little guys noticed. Michael Burry and some unknown YouTuber saw this over a year ago and started buying GameStop, and making a case for people to buy GameStop.

This is very easy to understand. The wrong people are losing money. And that can't be allowed. That's all you need to know for this to make sense.

I'm not an expert but it seems to me that this whole 100% thing is a total red herring. If I (A) have 50 shares in GME, I let you (B) borrow them and short sell them to person (C), person (C) now owns them, you (B) can borrow them from person (C) and short sell them to person (D). Suddenly you've short sold the same stock twice.The only issue for you is that you now need to buy back 100 stock to pay off what you've borrowed, which you could do buying the stock from person (D), giving it back to person (C), buying them frmo person (C) and giving it back to person (A).

The only issue comes if someone notices that you've done this, pushes the price up to the point where you have to exit your position because your broker won't let you hold this short position that you can't afford to pay for. At that point you must exit, which drives the price up even further because you're creating demand for the stock.

What's important to notice about this is that the second you're no longer short the stock, no one has any incentive to hold the stock. So it'll return to $20 and all those super smart boys on WSB who were holding out for $2000 have thousands of shares of a worthless retail stock that they probably bought on margin and are going to lose everything.

Yes. When the dust settles there are still 70M almost worthless original shares that will be held by someone.

But in the meantime, there are 70M short shares that need to be rebought from the 140M original+loaned shares. The idea is that forcing closing out the short position will allow you to sell some at sky high prices, hopefully enough to cover the loss from the rest of the shares that must be inevitably bagheld.

100% of float or 100% of outstanding are not super significant inflection points, just very large ratios.

Not necessarily. Those shorts exist for a reason: someone thought that gamestop was a bad company. If they are right then the short position won't need to be bought back because at some point the bankruptcy court will decide that the share holders get nothing. At this point all trades on the stock are legally halted and so the IOUs are legally meaningless - anyone who owned stock gets nothing.

Of course the above depends on the short holders to: be right; have the capital to not have to cover their shorts; and be willing to hold on for the ride. I'm not making bets on any of the above.

Hi everyone, thank you for joining our Gamestop company all hands, I'd like to introduce our new CEO and majority shareholder, soon-to-be bankrupt guy from reddit.

People conspiring to push prices in one direction is a clear cut market manipulation and I believe a criminal offence in most jurisdictions.

It's fine to have lots of people buying something, but if they discuss how they can coordinate to hurt short sellers or something like that, particularly on a public forum, despite not being a lawyer I am fairly confident this is prosecutable.

Market trading regulations are full of fine lines where the wrong side can land you in jail. For instance the difference between front-running and pre-hedging / anticipating market liquidity is basically the intent and the information the trader has. The actions are indistinguishable.

They can halt trading of the stock all they want. All exchanges do [0]

But the crazy part is that they only halted one side of the trade... the buy orders. That is manipulation.

Personally, this cost me £1k on Nokia. I went from +£700 to -£1000 over the course of about 30 mins, because the market was pulled from under me.

[0] https://www.nyse.com/trade-halt-current

Exchanges halt trading, is Robinhood an exchange?

>But the crazy part is that they only halted one side of the trade... the buy orders. That is manipulation.

Exactly, I mean you could make the argument to stop selling: "The current price is being manipulated and is too high so we stopped our customers from selling if they mistime the market. We will resume selling when prices return to normal."

Edit to add from /wsb:"If you try to sell you will get fucked because who are you going to sell it to if nobody can buy it?"

I hope there is some meaningful action by the SEC. It would be interesting to have all the trades reversed to the point when buying was stopped.

>> helping mitigate risk for our clients

It's cute when they phrase it like that, though everyone understands that it should be "chosen clients that make us most money"

Apparently Citadel is in bed with Schwab/Ameritrade, too, who also halted trading:

"The Verge meanwhile noted one hedge fund suffering amid the GameStop surge was Melvin Capital Management, which another hedge fund, Citadel, has since bailed out. Citadel's founder is Ken Griffin, who also founded Citadel Securities, a big investor in Robinhood that also works with TD Ameritrade and Charles Schwab."

I suspect they sell them the trading data just like Robinhood does, to help them front-running the retail traders.


And they were probably informed in advance that Robinhood was about to limit trading so they could short the stock at the exact right time.

I think you're entirely right, but Citadel is the customer Robinhood is protecting. The retail investors are the product.

Yes its why Robin hood is "free" but people are ignoring that maybe

In this case, the "restrictions" seem clearly aimed at retail investors, and intended to help those with short positions.

But trading Tesla is OK? Oh wait that's a darling of WS, so it's OK. /s

> Why do Robinhood, Reddit, Discord, etc feel like they have to respond to this?

Indeed. There's a lot of talk about Section 230 lately, and how "precious" it is to freedom of speech. That law protects them from culpability against hosting legally-dubious things like this market move -- and any malfeasant commenting about it -- but none of the big platforms are acting like it exists. They're just censoring anyway, because they are either embarrassed, or are getting their strings pulled. Either stand behind Section 230, or admit you're just censoring things for duplicitous reasons of politics, money, or the rabble.

Section 230(c)(2) explicitly protects service providers who remove content that they deem to be “otherwise objectionable.”

Robinhood’s actual customer is Citadel. Citadel was funding the short sells, investing directly into Melvin Capital, for example.

Robinhood did not act against its customers. Its users are their product, which it sells to Citadel. As you see now, this is way more than an edgy quip: when its free you are the product.

I just want to know how do you know for sure what those guys have been doing. Have they exposed all their trades? Are you saying that they were so stupid to not have hedged it?!

This is a hedge fund's game as it is for WSB.

It is the regular traders that have shorted via option that are losing money just the same. They are the most likely bag holders because they they don't hedge.

Don't assume all parties are truthful.

Which is invested in Melvin, Citadel (the hedge fund) or Citadel Securities (the market maker, and Robinhood's customer)?

Obviously I'm speculating but one of the largest investors in Robinhood's last round was a hedge fund.

As others have pointed out, Citadel's market making arm is their largest source of revenue + Citadel's hedge fund recently invested a large amount in Melvin Capital to help shore up Melvin's capital base after their loss.

Unfortunately unless Robinhood insiders leak or post their rationale behind this decision, we'll never really know what happened behind closed doors.

To some degree, they have a legal responsibility due to the "suitability standard" (link below) to do this. While they aren't recommending GME and the others per se, they certainly profit from the order flow as well as new account sign-ups. People may be making money now, but those who lose their shirts -- especially if the RH platform crashes when they try to exit a position -- are going to be angry. Preventing purchases in the first place is a way to keep those people from litigating, and to demonstrate to regulators that RH didn't attempt to profit from a mad dash toward unsuitable investments.


Their platform is probably inundated with open orders on these few names, as the price is all over the place. They had outages back in March 2020 and presumably there's a risk of the same if everyone tries to close their positions at the same time (eg, if u/deepf**ingvalue announces that he has exited).

This is just a guess, but I imagine the hedge funds that own shares of these platforms are pulling some strings. That's a bit conspiratorial, but is it really that unbelievable?

It’s not unbelievable, but it does sound like a breach of fiduciary duties to side with investors against your clients.

Is what RH doing legal for a brokerage?

> Is what RH doing legal for a brokerage?

At this point, nobody cares - Reddit found a repeatable distributed exploit that cannot be patched, and the financial system's self-preservation instinct kicked in.

The big short was the same thing. The VW short squeeze too. This is nothing new. The fix is to just close your short position.

I love that movie it shows them 'fixing the House' / messing them around in other ways. ratings houses refusing to downgrade MBS rates and the banks that wrote Burry's trade refused to execute until they also were on the right side.

> Whether the investments being made are responsible or not, it doesn't seem like it should be their place to intervene.

The entire history of the retail investing is unsophisticated investors shooting themselves in the foot and then turning around and suing everyone who allowed them to shoot themselves in the foot. It's obvious to everyone watching that for every retail investor who buys in at $10 and cashes out at the top there are going to be 20 other traders who FOMO in at $300 or $500 and then hodls all the way down to $10. People have a stated preference for Freedom to take risks but a revealed preference for paternalism (they start suing everyone around them for not "protecting" them from themselves when risks go bad). You can't blame companies for rationally responding to the legal liability they think they will incur if they let more retail traders pile onto meme stocks.

>Why should Robinhood pick a winner (siding against their own customers)?

Robinhood operates a lot like Facebook. The "Gold" subscriptions and margin interest are tiny portions of their actual revenue. We are not their customers, we are the product. They offer free trades in exchange for selling order flow data to hedge funds, which in turns allows them to manipulate the markets. Of course they would protect their actual customers.

This is the correct take.

If you thought free brokerage accounts with no-fee transactions was too good to be true... you were right! There was a catch, and this is it.

You know the adage usually applied to Facebook, "If you're not paying for anything, you aren't the customer, you're the product" ? . Daytraders and WSBers and other small fish like you and me aren't Robinhood's customers. Robinhood's customers are Citadel and companies like them who pay Robinhood for order flow from the uninformed masses. Keeping that in mind, here is the simple answer to your question:


>Can someone help me understand Robinhood's POV?

This is a small part of the picture but RH lost a lot of money due to WSB advertising and exploiting the 'infinite money glitch' so it likely didn't take much convincing to act against WSB.

Though ironically it took them months to close the glitch which was their fault and a day to stop the action on WSB's picks.


A charitable guess is that Robinhood is trying to protect their users from buying at the height of this mania.

There are people literally investing their rent money into GME, and it's almost inevitable that the price will come down at some point, the only question is when and how far.

The trade screen could just display a warning that the stocks are in question are experiencing high volatility, and require the user to click something to indicate that they understand the risks.

It is likely that they have lend out the $GME shares to a hedge fund that went short, if this hedge fund goes bankrupt and the stock price continues to rise they will be in serious trouble.

Robinhood makes most of its money by selling "dumb money" order flows to bigger Wall Street firms: https://fortune.com/2020/07/08/robinhood-makes-millions-sell...

It seems plausible to me that some of Robinhood's real paying customers have asked them to tame their unruly product.

How is this not making people cynical, even for a person like me who does not own any share of GME? And isn't cynicism one of the greatest dangers to a system, for people stop trusting the system no matter what?

As far as I understand it robinhood makes (most of their?) money from selling their order flow to hedge funds.

Which is not remotely illegal, and most brokers do the same thing, except they used to charge people to buy and sell as well but now just make money from order flow. In fact market makers have always been involved in stock sales to ensure a fluid market; none of this is new. What is new is that buying and selling stocks costs you nothing, so there is no barrier to anyone to put money in or take it out. While everyone thinks it's a great thing, it's no different that allowing free communication in exchange for your personal data (ie Facebook) instead of requiring you to pay to communicate via mail or phone or plan things in person. Free always has a cost; in this case free involve scads of money changing hands with the folks at the end holding the bag, and anyone can pump the market to ensure they make a profit, and someone else takes a loss.

The theory isn't "it's illegal", the theory is "someone at their main source of revenue might call them up and pressure".

It's not a question of legality, it's one of incentives.

Similar to Google or Facebook, if I get the service for free, the service-providers' incentives may be aligned against me in favour of their paying customers.

Nah, it’s likely net interest that is the largest portion.

Yes. Hedge funds profit from every trade on RH.

I am not an expert on this.. but here is a theory. Broker's are incentivized to have the short squeeze stop.

Someone please correct me if I am (or how I am) wrong with the following:

Bob is a broker.

Jack comes along buys 100 shares of X.

Bob lends those 100 shares of X to Amy to sell short.

Amy sells it short. Price shoots up.. Amy says “oh crap.. Sorry bill. Simply cannot buy back those shares. I am bankrupt. I physically do not have the money to do so.

Jack will still expect Bob the broker to make sure his 100 shares of X are there one way or the other.

Bob the broker has to buy back those shares it lent out to Amy so that Jack the account holder is still able to sell/trade their shares.

There are a couple of charitable explanations for Robinhood acting this way.

One is that most Robinhood users probably under-estimate how quickly they can sell if the price turns around quickly. There might not be enough willing buyers for all of the Robhinhood users who might be looking to get out at the same time.

Another thing is that I'm not a lawyer, but they could be worried that if the SCC finds the discussions on Reddit constitute a conspiracy to manipulate the market, and it's primarily being executed through their platform, and they're aware of the conspiracy and take no action...

Every short seller is a buyer. That's why people keep buying the stock. There are more buyers than sellers.

But what happens when all that liquidity provided by squeezed shorts dries up when either they all capitulate or the price starts to come back down?

I'm just guessing here, but another thought is that since Robinhood apparently want to IPO in the near-mid term future, they would rather take the “bad press” now, than take it in a month when it’s “Gambling allowed on Robinhood ruins lives as Robinhood makes record profit”

"The Robin Hood effect is an economic occurrence where income is redistributed so that economic inequality is reduced. The effect is named after Robin Hood, said to have stolen from the rich to give to the poor."

So I think in Robinhood's POV, hedge funds are the poor.

>Why should Robinhood pick a winner (siding against their own customers)?

Because Robinhood's actual customer is Citadel, not the retail people making the trades.

Citadel gave $2.7BN to Melvin Capital a couple of days ago. It stands to lose that money if Melvin (and Citron etc.) can't fully cover their short positions.

A good way to make the stock price go down and allow Citadel to make money, is for RH to only allow selling and not buying of GME.

It's utterly appalling market manipulation.

> Why should Robinhood pick a winner (siding against their own customers)?

They're not siding against their customers. The median Robinhood trader that buys in at $350 is going to be left holding the bag when the price drops back down to $10. You can argue whether or not the paternalism is good or bad, but this is obviously going to on net stop more people from losing money than making money.

I think it's BS to stop people trading but...

You can make a good argument that WSB are engaged in market manipulation. RobinHood don't want to be the broker for that for a whole myriad of reasons.

I would love to see a good argument there, because while that argument is easy to accept at face value, when I dig deeper at the concept of what market manipulation is, I fail to find behavior that the majority of WSB is engaging in that fits that criteria.

Where are the fraudulent statements causing price pumps? None of the prominent due diligence the community has provided that started this run has been found to be untrue. Their thesis still stands: GME was undervalued and shorts were vulnerable to a squeeze.

I've no idea if it meets the legal definition of price manipulation (we'd have to review the finra records which aren't public). And even then, it might not be the SEC etcs opinion that they want this fight.

That said, WSB have been really clear that they're cornering the market to drive up the price. The fact they've done it by coordinating 1001 little retail accounts makes no difference. Short squeezes are always pretty dodgy. This one is openly a conspiracy to move a market.

Shorters got themselves in a dumb position. It seems to me someone is rigging the market to get them out of it. But that doesn't change the core action here: let's conspire to corner the market and force an artificially high price.

> But that doesn't change the core action here: let's conspire to corner the market and force an artificially high price.

First, I recommend you look up the meaning of conspiracy in the dictionary: "a secret plan by a group to do something unlawful or harmful."

Tell me, where was the secret plan? Everything on WSB happened in the open, in plain view of millions of people.

Second, the market is not even what's cornered here. It's the hedge fund owners who shorted gamestop (fully understanding the risks this entailed), who are cornered. They are the ones who are driving the price up as they try to cover their short positions.

>Conspiracy has been defined in the United States as an agreement of two or more people to commit a crime, or to accomplish a legal end through illegal actions. A conspiracy does not need to have been planned in secret to meet the definition of the crime.


One of the dodgiest things in English Common law is the low low bar for conspiracy (see also Joint Venture).

I think we actually agree about the cornering part don't we? I say the shares are cornered, you say the hedge funds but it amounts to the same thing. I definitely agree the hedge funds are looking fucked and deservedly so.

> I think we actually agree about the cornering part don't we? I say the shares are cornered, you say the hedge funds but it amounts to the same thing. I definitely agree the hedge funds are looking fucked and deservedly so.

I think we agree on this.

> an agreement of two or more people to commit a crime, or to accomplish a legal end through illegal actions.

Are you saying, though, that publishing advice or suggestions on a forum to buy a certain stock is a crime, or is illegal? That kind of stuff happens all the time in newspapers and television shows. Wall Street insiders have coordinated buying and selling for generations.

So did giving the advice become a crime by virtue of the fact that so many people decided to act on it?

I would say Yes AND then some to the question about the legality of advice.

Offering financial advice is a regulated activity. You should have a license and qualifications and insurance and whole crap of other stuff. You may need to declare conflicts of interest.

Advising others to buy a share you hold in the hope the price will go up (or to sell something you're short etc) is a crime. This is why you'll see or hear disclaimers from all sorts of outlets either stating the comments are not advice or declaring holdings etc. The A16Z podcast is a good source of this.

So advising people is not in any way a safe, legal activity for random commenter. "it was advice" isn't a defense here unless you're registered, qualified, insured and declared your holdings and intent to trade.

I'm not saying people don't do it anyway, or that the sec actively hunts ever reddit account that says "I like tesla". They don't. But the SEC gets to choose what it pursues so if it wants to make an example of this or to quash WSB influence or to help its friends in hedge funds, who knows?

Such is the murky nature of financial regulation.

That was the "yes" part. I would add this as "and then some":

Advise or comentory is saying "we should buy GME because its a good company, well run, profitable, undervalued, due for a change in fortune" etc. That's just an opinion or a statement of certain facts.

Saying "if we all buy it, we can break the market and force the price up" goes beyond advise. It is explicitly intended to change the price. In this case, the commenter isn't discussing whether the company is good or not. The company the shares are in doesn't matter. Instead, they're using their size to bully others and drive the price in the direction they choose rather than on reflecting the companies prospects.

That's what WSB (or rather some of its users) explicitly said they were doing. That's what they then congratulated each other on doing. We even sort of agree on this point: they cornered it. It didn't happen by accident, people didn't say "GME is a great buy". They were explicit from day 1: "GME doesn't matter, but we can form a group and coordinate to change its price and make a profit".

Now again, maybe the SEC don't care. Maybe they're too lazy to pursue it or they also think hedge funds do it (much more covertly) so fair is fair. Maybe they don't want the political blowback that comes with this. I don't really care to be honest with you, good luck to the little guy.

But it seems pretty easy to me to make the case at least that this is market manipulation, that it succeeded, that it was intentional etc

When 1 big hedge fund does this, or a few work together, it's just as bad. But they're at least quite about it. They'll discuss it offline in unrecorded meetings. They do it slowly. They're careful not to do it too often. WSB have posted about it and blasting the market. That makes it harder to ignore.

The core concept here is that you should buy or sell stock because you believe the company will succeed or fail going forwards. Doing it to drive the price is an abuse of size. It doesn't matter really who you are, how many you are, or whether someone else is shorting the stock etc.

It also doesn't matter if others are manipulating the price, you don't get to "manipute it back".

Again, I think it's hilarious they did this. I admire it in a dumb way. I'm not calling for prosecutions. I think it's very concerning that execution only brokers took it upon themselves to step in (I'd like an inquiry there).

Im just saying, they did conspire and they did manipulate the stock price. <shrugs>

Thanks for reading this and the other comment. I hope I haven't ranted too much. It's been a pleasure reading your comments!

Are they banning people from trading the stock or trading the stock on margin? On margin would be reasonable, if the volatility of the stock becomes very high, the broker is taking a credit risk on its client it may not want (plus suitability consideration). It may also make sense to restrict access to certain stocks if they are deemed too complicated/dangerous to retail investors. But I doubt the suitability would be a function of a market movement.

Or is the platform assuming that its clients are doing market manipulation by coordinating on reddit to push the price up, and wants no part to a crime being committed.

Just speculating, but can think of some reasonable reasons.

They're not letting you open new positions in the stock or options on the stock. You can only close your existing position. Guaranteed way to make the price go down.

To be honest I ignored the whole topic until today.

But in my opinion the rationale is obvious: you buy a stock, that means you provide that company with liquidity that they can use to operate and grow their business. I guess especially in the startup scene VCs and investors are in high regard since they believe in the future value and perhaps also the product of a company.

Example: imagine I'm a hedge fund and put so much money into company x that the stock moves up. The company probably thinks I gonna fund their business for a few years (remember, stocks are long-term investments). Stock rises, they do a few risky choices. Suddenly I pull back my money. That would suck.

I think options and futures have reasonable functions, especially to stabilize investments and raw material purchase. But speculation can easily get unreasonable, you basically speculate with the liquidity/credit of other companies that actually care what they do. The irony is that futures have been invented to stabilize food production, I think since almost 1000 years. But probably you don't want a large hedge fund play with this stuff.

Also to put on another perspective. People are crazy about fairness on markets, even the super free US market has strict cartel laws. On the other hand large funds like Blackrock are so large, they have government-like powers. They even have the power to decide whether companies should stay or steer away from coal energy. That's even worse than a monopoly.


Disgusting level of manipulation. If you can only close positions the only people who can buy are short sellers closing their positions.

Well with a name like Robinhood I can at least see why they might be a tad hot under the collar on the legal department today.

What's played out over the last week has been an epic battle between David and Goliath. Goliath is winning... per usual.

Translation: big business interests and wall street hedge funds win out. Of course, lots of retail guys and gals and r/wsb folks are losing their shirts today. It would have been next week if it didnt happen today.

Their customers aren't their users - it's the institutions paying them for order flow.

I'm going to start spreading this around. It's a comment by someone else who points to an interview of the WeBull CEO and why they had issues. It's pretty clear that this is a process issue, not necessarily a RobinHood is evil issue.


Link to the video from the OP. https://finance.yahoo.com/video/heres-why-robinhood-restrict...

Could either be govt/NASDAQ forced something or a major investor/VC in Robinhood is putting the pressure because they have other investments or vested interests in the hedge funds getting hurt.

Rh wants to go public and relies on Citadel. Both major reasons why Rh does the larger funds' bidding. Rh's trading for the people angle is a bunch of BS

Execution risk that they can’t handle. When you buy/sell stock on Robinhood, they hold execution risk until they net out your position by transacting a large enough order on the market. In this situation they don’t know how to manage the execution risk on these trades, so they are losing money, so they don’t want to do them.

> (siding against their own customers)?

You misunderstand who their customers are. Who you're calling customers are users. Their customers, the ones who pay them, are the dark pools and other trade routers, or whatever they are called, who pay RH for routing trades thorough them.

This prevents over leveraged YOLOs to go bankrupt, which prevents RH to hold their bags

"Can someone help me understand Robinhood's POV? This just seems so outrageous"

You are a mall owner and 25 000 people are stampeding through your mall causing a ruckus which will in the end create no value for anyone.

This is speculative mania with no basis in any kind of market reality, people are actively acting against the best interests of the participants, especially the companies themselves.

The lack of understanding here is what is 'shocking'.

BlackBerry, Robin Hood, Citadel, NASDAQ - nobody wants to be part of this.

It's ridiculous that people think they are somehow 'doing good' or even have some kind of inalienable right to own shares in a company on whatever terms.

This is a 'market riot' nobody wants to be involved but the rioters.

CFOs are all very nervous right now and I wouldn't doubt if some of the target companies have asked for protection.

>Why should Robinhood pick a winner (siding against their own customers)?

If you consume a free product you aren't the customer, the person who pays the provider money is.

It's not just Robinhood, I'm on Schwab and they blocked trading GME this morning (didn't try it but SELL might still be open)

Well probably to stop people buying at $500. If at any point it crashes to $100 it's going to make people more upset.

Robinhood allows free trades. With all the new customers loging in and just buying a few stocks, they have to acquire lots of new shares. When this is all over, a lot of retail investors are going to be left holding the bag, and will likely not be continuing customers.

The opposite is true:

The idea behind these trades is that they will not in fact suffer any losses because they bought in after the naked shorts brought the stock down to a low valuation. If they keep the stock high enough, long enough, the naked shorts will have to buy back the stock at much higher prices than the price was when this short squeeze was started. That's why short squeezes are a thing in the first place. This is no different than what Carl Icahn did to herbalife and Bill Ackman.

When companies keep these people from implementing their strategy, they expose these individuals(their own customers) to potential huge losses.

look at GME today, a lot of late arrivals have just lost a lot of money. they are probably not professional traders

That's not how this works. Of course the play is bad if you completely ignore that the key part of the play is that short sellers and call contract writers are contractually obligated to buy pretty much regardless of the price. Whether or not it pans out this way for most retailers is yet to be seen, but the mechanism is sound and the risk is in not having data available to you on what the outstanding short interest is.

It's not a loss until you sell, and a key date to sell (tomorrow, when tens of thousands of 1/29 calls expire) hasn't happened yet.

Once the short positions are covered, shouldn't we expect the price instantly fall to its original level, modulo retail bagholders still buying due to fog of war?

And... The price is in freefall in the last minutes of trading today.

Largely correct. The only thing I would add is that I wouldn't be surprised at all if it landed a fair bit above where it started, because there being short interest 140% of the float has a pretty chilling effect on people looking at investing. You would see that and either think the shorters are morons in an insanely risky position, or they know something you don't and are _absolutely certain_ that the company is going to implode. This time the former is true, the vast majority of the time, the latter is.

Fog of War is the important bit here. The big difference between this and a pump and dump is that the FOW here is retail investors not having great SI data. In theory, a retail investor could still make this work in a "safe" way (safe used very liberally); it would be a hell of a maneuver for everyone with a short position to somehow close their position in a single day before Joe Retailer is able to get any word on what the outstanding SI is. In a pump and dump, your FOW/missing information is when the party working to pump the price decides the gig is up, which is effectively impossible to know unless you are that party.

A lot of retail investors with four days of experience under their belt are going to lose their ass by trying to suss out their exit intuitively, but for those that did their homework, this could work. For many, it already has. The argument that this needs to stop because uneducated retail investors can get burned can be reduced to absurdity -- "retail traders can vaporize their life savings by going long on a company facing imminent bankruptcy, so they shouldn't be allowed to trade with even the most rudimentary of instruments."

Price being in freefall doesn't affect the huge number of people that were in well under that, the way this strategy is working, or that people somehow still think that going short on this is anything other than a lottery ticket play because of "muh fundamentals."

Better to educate instead of ban then. So long as people have the facts, let them make their own decisions. At this point a number of people are probably just in on this because they love the idea of sticking it to a hedge fund or two.

Lots of people saying "you can lose a ton of money"

If you buy 10 shares at $200, that's $2k out of your bank acount, and it's gone, just like if you bought a car.

How do you lose more than that? I'm not talking about shorting and stuff, just buying shares, hoping it goes up, and selling it later.

Are buyers of these stocks really exposed to more downside risk than the buyers of the way OTM options they sell to retail investors freely?

Only those that got in late and then chose to sell at a lower price than cost.

However, and here is the problem - when the price does come down (likely after the shorts capitulate) , it will literally be a stampede to finally get out. It is unknown how sell orders will be processed... if at all at that point. So the later you get in the more likely you are to be burned, in the disordely unwinding scenario.

Early adopters will be ok. Holders and latecomers will not.

My point is, why is Robinhood still selling options that have a 95% chance to expire worthless, if their actual motivation is to protect their investors from high-risk trades?

Reddit and discord are afraid they'll be implicated in what is a classic pump and dump. Robinhood only exists because the SEC has chosen to look the other way concerning the pattern day trading rule which clearly is in jeopardy if big money starts complaining.

How is this a classic pump and dump ?

This is a short squeeze: the stock is shorted to the limit, and from the stock price, the shorters entered their positions "uncovered", so their risk is extremely high, and their losses are potentially infinite.

The WSB crowd and probably others noticed this, and bought the stock, knowing that it was going to become more valuable over time once the shorters had to close their positions.

They were right, and the shorters are loosing so much money that they are willing to buy back the stock at astronomical prices to limit their losses, which drives the price up even more.

The WSB crowd just need to hold until the stock is at the maximum price that the short sellers can pay, right before the short sellers default. That's the actual value of the stock right now.

If the stock climbs too much, and the short sellers default, the stock is worthless.

TBH, this is the short sellers own fault. They made the assumption that the market was "fair", and that they were going to buy back the shares for cheap when they needed them as a consequence.

That assumption was wrong.

It's a classic pump and dump because there's just no reason to believe that this is what's happening. There was a short squeeze at one point, but all of the funds known to hold large short positions had closed their positions by Wednesday morning; the value since then was most likely driven entirely by speculation.

In particular, I've seen a lot of speculators spreading the idea that margin calls will force everyone shorting Gamestop to buy stock at market price on Friday. This is wrong, and pretty unequivocally so, but I've had multiple friends come to me and explain that this is why they bought some.

This makes no sense - if they had closed their short positions of millions of shares and had the squeeze happen, the share price would have spiked far higher than it is now.

Why is that so? Trading volume was over 175 million each of Friday, Monday, and Tuesday. Do we have some way of knowing exactly what the price should be when they exit?

Robinhood would not put themselves in such a precarious position if they had already exited - also as for the price target of when they actually do start covering their shorts, they are still currently short more than the available amount of shares on the market - the current trading range of around 200-300 cannot be the squeeze.

You’re misunderstanding what a short squeeze means. There’s no singular “the squeeze” - no specific point in time where everyone who holds a short position has to simultaneously obtain the underlying stock. If everyone who wants out of their short position has gotten out, there’s no guarantee that any further squeeze will be forthcoming.

I don't think you understand - the assumption that they already got out doesn't hold because shorted shares/float data is publicly accessible[1]. Now I'm sure what happened today allowed them to cover some of their losses partially, but not even close to all of it.

[1]: https://finviz.com/quote.ashx?t=GME

You definitely don't know what you're talking about. Have you even seen the finra data or even S3?

By this logic the stock should be shorted even more than it currently is. Why did short sellers close their position if that is the case? Your story is not consistent at all.

What? RH enforces the PDT rule, as does every other US broker. SEC is not looking the other way there at all.

> Robinhood only exists because the SEC has chosen to look the other way concerning the pattern day trading rule

This is simply not true at all.

I've had my trading on RH restricted specifically because of the PDT rule. As in, I was about to make a trade, and the site told me that the trade would cause a restriction because of pattern day trading.

Because RH's real customers are the hedge funds that buy their trading data.

It's users are the product.

I'm sure this started with a call from a "concerned" board member.

Serious question: Since RobinHood is a private company, does the "if you don't like it, you can build your own platform" argument apply here? Or does that only apply selectively when it benefits partisan politics?

This is the natural evolution when censorship as we've recently seen is given a pass.

Censoring speech and regulating stock trading are categorically different. This doesn't cut across political lines as much as it does lines of class

Yes, but that still has absolutely nothing to do with a private company having the right to make their own business decisions.

The ACTUAL different is that since it doesn't cut across political lines, you want to treat the situation differently.

When markets move rapidly, and in GME’s case we are T-1 from opex, brokerages cannot manage risks effectively. They could actually be exposed quite a bit. With something like GME (probably an 8 sigma event) it could actually put Robinhood out of business.

It seems to me it's because "market makers" are a thing. Market making activities create billions in profits. But we are seeing the flaw in the market making algorithms.

Do we need market makers to let us always take a position in every single option when no real market for that option exists? I would argue no. It's completely artificial and they profit from it. If companies want to be market makers and profit from every single transaction, they need to be prepared to take a loss when the math doesn't swing their way.

MM is different from RH. RH would actually need to get collateral (or raise money) to allow its customers to trade GME at this volatility. I really think the anger should be directed at Wall Street and the Fed for creating a frothy investment environment and not doing anything about it. RH OTOH is trying to be a disruptive player.

I understand that RH is not a MM. So then why does RH have to manage its risk from the holdings of it's own customers?

I am not a finance professional but I thought RH is just like a custodian and facilitator of trades. It's not on the other side of any of these trades. It never holds any positions. Why does it have to manage its risk and why does a GME event create extra risk for RH?

I thought this kind of risk is only for the MM's like Citadel.

It's one of the things:

1. SEC is protecting the little guy and being paternalistic

2. Institutional collusion

However, 1. could be likely because this GME frenzy is reducing confidence in the overall market. S&P500 lost 100 pts this week. By stifling buys, they

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