> How come they only had trouble executing buy GME orders?
I used to be an options market maker. Different animal same game park.
If I saw a stock doing what GameStop is doing, I'd pull the plug. One, we'd have already made a ton of money on it. More importantly, with this kind of volatility (and correlation), we'd be well outside the parameters of our risk models.
Usually, cash equities don't have this problem. But there is a realistic chance that a desk will fill a bunch of sells, turn around, and within those microseconds watch the market gap down 50%.
It's unlikely. But how unlikely? We don't know. We're too correlated, and too volatile, to predict that. You do something like that, particularly after the amount of press coverage this is getting, you are going to lose your job.
> I hope RH is burned to the ground after giving up whoever coerced them into doing this
Between the gameified UI that encouraged day trading, their reliance on payment for order flow and margin-lending / options trading model, I won't say this was bound to happen. But it was an identifiable risk.
The warning signs were clear when their systems went offline under large volumes. Concerns were dismissed then. I expect this will be forgotten by much of their user base soon enough as well.
Honest question, why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high? The argument for why we allow these organizations to siphon money as a middle man is because they provide an important service and are taking on risk. But if they're allowed to bail when things actually get risky that's a lie and they're just leeching money. You made the analogy that their job is like vacuuming nickels in front of bulldozers in another thread, but if they can just leave when the bulldozers show up what they're actually doing is just vacuuming free nickels that other people dropped.
I know its pretty clear my current personal opinions on this topic lean rather hard in one direction but I am truly open to hearing the counter argument and could be convinced otherwise. Some of your posts here and in other threads have changed my view on other parts of this whole mess already so I'm asking because it seems like you're willing to discuss sanely.
> why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high?
This is a great question.
Short answer: they shouldn't. When a market maker signs up to make markets on an exchange, they commit–contractually–to providing quotes in good times and bad. Payment for order flow contracts can vary, and I don't know what Robinhood's terms are, but they typically carry a similar requirement.
There are reasonable exceptions. If your systems are having issues with a stock, e.g. the intern entered a dividend wrong into the database, you can declare "self help" and stop quoting for some time. This is occasionally abused. But exchanges are decent at policing it.
In this case, though, yes--a lot of market makers made a ton of money, got scared, shrugged and then put their hands up. (Again, caveated to Robinhood's agreements.) Fortunately for them, the crowd has been distracted by this Ken Griffin called Robinhood to screw over /r/wsb story, so they won't get much more than a slap on the wrist.
If Ken Griffin put in GME shorts before ordering his market making desks to quit in it, yes, that would be criminal.
If a fund manager bought puts a few hours before the market makers put up a white flag, I'd want a thorough investigation to rule out collusion. But by itself, suspicious--nothing more. If a long-short value fund bought puts based on an algorithm keyed in months ago before market makers fled the scene, it's almost certainly innocuous.
And if the options desk was hedging the puts they just sold by selling short while the cash equities desk called it quits on the name, that would be perfectly normal.
> why MM's would only pull out of selling GME? Because RH was still allowing buys.
Market makers typically would pull out of the name, not out of one side.
My guess is Robinhood didn't want people opening new positions--long or short--in the name. Blocking people from selling an asset you sold them raises all sorts of issues. But denying them the ability to enter into a new position through your services is on more-stable ground.
I used to be an options market maker. Different animal same game park.
If I saw a stock doing what GameStop is doing, I'd pull the plug. One, we'd have already made a ton of money on it. More importantly, with this kind of volatility (and correlation), we'd be well outside the parameters of our risk models.
Usually, cash equities don't have this problem. But there is a realistic chance that a desk will fill a bunch of sells, turn around, and within those microseconds watch the market gap down 50%.
It's unlikely. But how unlikely? We don't know. We're too correlated, and too volatile, to predict that. You do something like that, particularly after the amount of press coverage this is getting, you are going to lose your job.
> I hope RH is burned to the ground after giving up whoever coerced them into doing this
Between the gameified UI that encouraged day trading, their reliance on payment for order flow and margin-lending / options trading model, I won't say this was bound to happen. But it was an identifiable risk.
The warning signs were clear when their systems went offline under large volumes. Concerns were dismissed then. I expect this will be forgotten by much of their user base soon enough as well.