The Depository Trust & Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You've never heard of it unless you're a professional trader, but it's actually quite fascinating to read up on.
Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.
There are rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.)
In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares' worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. Done.
Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug.
This sounds the real reason that RH limits the trading of a number of stocks today? If so, why didn't they give this straightforward reason? Instead, they resorted to vague excuses like misinformation and "for your own good".
Because it is the equivalent of "we literally don't have enough money in the bank to allow you to trade on these". Which will be a very problematic statement for a trade broker. The equivalent of panic if too many people withdraw from a bank.
Few people are actually getting this information. So... its not horrible press for them.
And if they say this. People would sue like MAD. Because it would be "RH didn't have enough money to trade on a thing they allow trading on. Therefore we missed out on potentially 5 million in profits when I was unable to trade ..." and so the lawsuits begin.
Lol, so instead, most of the internet thinks they are colluding with institutional short sellers at hedge funds in order to save them and screw over retail investors. They already had (probably in spam detection right now as they are currently gone) hundreds of thousands of 1 star reviews on the android star and tons of people like me deleting their app.
Oh, and I heard they were supposed to IPO this quarter and I can see this event single handedly completely derailing that with how many users they are going to lose.
> instead, most of the internet thinks they are colluding with institutional short sellers at hedge funds in order to save them and screw over retail investors
Communications were undeniably terrible. That said, I imagine they have a limited number of people on staff with deep clearing knowledge, and those people were preoccupied. Aviate, Navigate, Communicate.
> I imagine they have a limited number of people on staff with deep clearing knowledge
Since you just gave us the basics in like 5 minutes, is it too much to expect that people whose job it literally is know that too? Especially the ones doing communications.
> is it too much to expect that people whose job it literally is know that too?
No, I don't think so. I don't know when they drew on these lines of credit. Maybe that was still up in the air when the first announcement was made. No financial institution wants to say "we ran out of capital" during market hours.
I'm sorry but I absolutely cannot buy this (just like $GME); I see Hanlon's razor weaponized like this constantly and I think we've long passed the point of violating Occam's.
I can accept that they ran out of cash. It's just like a company running out of servers when traffic spiked. On the other hand, moralizing their decision and citing misinformation and user-caring erodes trust.
I can't. They all saw this coming from at least two days before, and they managed to fix this problem with a trading session. Rather than freeze the entire market on GME so no one could buy or sell, institutional traders were free to buy out of their positions while retail accounts were being liquidated in a coordinated fashion across all brokerages.
It's very clear to me that insiders saw the how much hurt this short squeeze would bring the financial markets, and they all coordinated to relieve it. It's no coincidence so many hedge funds started degrossing, futures were down, and the VIX spiked to the moon exactly as $GME's price started accelerating...
...once brokerages bricked buying the VIX collapsed and markets rose.
Infinity squeeze averted and all's well in Wall Street. No big institution is likely at risk anymore and retail traders along with smaller funds will be the bagholders.
Who is “they”? Unless I’m very much mistaken, Robinhood has no institutional clients. The institutional clients as well as the more serious retail clients were unaffected.
It would be quite odd to halt trading on a stock market-wide because a small number of brokers run out of collateral.
Stop being "less smart". Robinhood's clients are/is a hedge fund manager, Citadel Securities - Robinhood’s largest customer, which tried to bail out Melvin Capital which got bankrupted in the short squeeze on GME. Unless you've lived under a rock you should know by now how Robinhood is making the money.
IB's CEO was interviewed on CNBC, and he actually said that his motivation was to "protect the market" ... specifically large players important to the market, whose solvency was threatened by the short squeeze.
"... we are concerned about the financial viability of intermediaries and the clearing house."
> There is no doubt that a default by a clearinghouse member is more likely when initial margins are low and may be
caused by a sharp unexpected move in the underlying markets. In the event of a default by one member this could trigger
a chain reaction. Firstly, initial margins will rise in an event of a default, which will restrict other trader’s ability to
participate in the market possibly acerbating the move in the underlying markets. Secondly, if the defaulting member was
a particularly large player in one asset (likely, as this would be the cause of the default), the members with opposite
positions may not receive variation margin and hence will become unhedged at the very moment they need hedging.
Thirdly, the clearinghouse may well have to recapitalise itself from the surviving members. Major clearinghouse members (including JP Morgan) appear to be seriously worried about a clearinghouse problem after the default by a member of Nasdaq Clearing AB ..."
When you put some billionaire guys, some of them happen to be have multiple roles such market makers, brokers, hedge funds that short GME and even the investors in the brokerage platform where GME is traded on one side and some poor retailers on the side side you don't need a big brain to figure out who wins.
Maybe you are not aware but Melvin lost almost 3 billions and was bailed out by Citadel and Point72 and probably they will loose even more and go bankrupt if they don't stop people buying GME.
Do you think these guys want to leave all that cash on the table and play fair? If you look at Point72 owner(Cohen) you see some really "interesting" things.
I could buy GME through ETrade but IB wouldn't allow a buy with cash. The chairman said something about market health but the reason he gave was about margin without using that word.
> It's very clear to me that insiders saw the how much hurt this short squeeze would bring the financial markets
Maybe. But if this is a trolly car problem it's clear they made the call to let the train run down the track with the retail investor when it should have been the track that eviscerated Citron and Melvin and all their backers.
Big institutions that made the bad trades should have been the bagholders.
Preventing their users from selling out of a position would be much, much more serious than preventing them from adding to a position. Incomparably so.
Have you not read about the fire they were under a while ago for making it too easy for people to lose money? Making it so people would be stuck in their positions would be insane, way more than their current actions.
If that is the case the way it supposed to happen is a directive from regulator body(SEC maybe) should go out saying stop trading of this shares. Lack of regulations and no word on why certain shares are not tradable isn't acceptable and you can't blame people from making their own theories.
There will be a lot of talk about sueing, some of it will result in litigation, and probably a few people will have some of what they thought they had taken from them restored - but none of this will result in RobinHood, or any other company, becoming the frictionless, almost-free trading platform they imagined it was.
> the frictionless, almost-free trading platform they imagined it was
Maybe we all should stop to consider whether free & frictionless are worthwhile aspirations. Ice has a lot less friction than concrete but I certainly don’t want to walk to work on it.
Maybe a little bit of friction in our news, investments, social media, communications, etc. is a good thing. Give our brains a chance to digest information and let the intelligent & cooler minds prevail rather than impulsively smashing the share or downvote button.
The problem is that Wall Street has access to, if not free, practically frictionless trading in comparison to retail investors. If you add more friction to retail investors but not Wall Street it just compounds the problem.
You do realize most hedgefunds lose money and that active trading isnt as effective as just buying and holding shares in index funds. This is Warren Buffets famous bet.
What WH has democratized is now giving retail investors the opportunity to also lose money with active trading.
Tech companies do this all the time when the cheap servers they run their businesses on can't handle the traffic.
I find it hard to believe that anybody would find it hard to empathize with the fact that your company failed to predict a wild meme craze leading to an overload of your systems.
Now that its said, it would have made more sense for Robinhood to just nuke its servers and return 500s to their users rather than deal with this whole mess.
I wonder which belief is better for the long term health of Robinhood.
Option 1: The public believes Robinhood is part of the larger finance industry cabal and will screw you over to protect their buddies.
Option 2: The public believes Robinhood is in over its head, it doesn't have the financial backing to do the job they are given, and it can go insolvent at any moment.
Considering the reputation and expectations for the finance industry, it might actually be better if the public believes option 1 even if option 2 is the real story.
I’d imagine option two is much better. I have a hard time blaming anyone for not expecting the chaos that has happened and I expect the PR narrative would go that way. Especially if robinhood had managed to stay on the side of the little guy in the public eye.
As it is, their customers got so pissed at the option one assumed story that they had to put out another post saying it’s option two anyways. Now they probably have the worst of both worlds.
Both can be true. Citadel, the hedge fund that bailed out Melvin Capital (the hedge fund that over shorted GME) is Robin Hood's largest client. So it could be there was incentive for Robin Hood to ban trading on behalf of Citadel and they also don't have money to pay back the trades they make.
If Citadel is a client of Robinhood, then they are are under no obligation to buy Robinhood's product. It's possible that Citadel stopped buying the order flow from Robinhood because they had exposure to clients who in turn had short exposure to the stocks in question. Even in the absence of such an ulterior motive, Citadel is a market maker and it would be foolish for any market maker to do huge amounts of market making on a stock that it's the headlines and is unpredictably skyrocketing. Ultimately Robinhood cannot continue to offer free orders on a stock if Robinhood's clients are not willing to buy a order flow on a specific stock from a specific client because that client's order flow is toxic and making the stock too volatile to make an orderly market in. Declining to accept toxic order flows and withdrawing liquidity from volatile stocks is a reasonable and accepted practice for market makers. Robinhood users pay zero dollars in commissions, and they get what they pay for.
Toxicity is a well-defined technical term in market microstructure literature. It basically means whether the direction someone trades in predicts the short-term direction of the market.
It's not a moral judgement. So to answer your question, hedge fund order flow is considered highly toxic. Which is why Citadel Securities pays to interact with non-toxic retail flow, instead of toxic hedge fund flow.
To understand toxic flow you have to know adverse selection. For example, you are asked to share a pizza with your brother. You are free to split it in half however you like, and your brother gets to pick which half to take. The most fair way is to split it in half otherwise he will select adversely.
Market makers job is to quote the true price of an asset by offering to buy and sell at different prices without having one side picked off more than the other. So when adverse selection occurs too often over a period of time, they will simply throw in the towel and fold, regardless of whether their opponent is bluffing or not.
In this specific case, Robinhood often have worse price than NBBO, so they get to do liquidity arbitrage in addition to the less toxic retail orderflow.
The tweet is deleted, but Google's cache says: "No one mentioning that free trades and shares at #RobinHood were made possible by sales of the trade flow to Citadel and its ilk. Robinhood's customer is and has been CItadel, not its retail traders. Which makes what is happening this week all the more..." (It actually ends in "...".)
Is that any different than any digital service with its 99.99% uptime? Robinhood will do everything it says it does except for the once in 30 years black swan meme event where 50% of their users try to invest their life savings at once
Healthy, ethical companies will sometimes combine the two. I'm sure that Tim Cook, as a boomer-aged gay man, has a very gut-level understanding of the importance of privacy: he grew up when being beaten up or even lynched for his sexual orientation was normal in his country, and where it was a criminal offense. The fact that the company he's the CEO can leverage "good privacy" to boost their profits makes for a happy combination.
They fucked up cookie management and pulled the trigger on it early this year, in the middle of a pandemic. specifically around iframes. I got stuck with the ass end of that at my company. We worked in education. There were many healthcare software people that were also pissed about that.
That was their second post of the day. Their first post [1] made no mention of liquidity or clearinghouse deposit requirements, but rather framed the decision entirely in terms of "helping" customers deal with volatility.
The first one looks like a form letter that they had on deck for "we need to stop trading right now" situations and they just plugged in the list of symbols. The second one is the more adequate explanation for when there was time to get actual humans involved.
Well they sure made selling really easy during the architected dip.
Why allow so many new users to buy those positions before they blocked buys if this was coming? I mean, the prices were elevated before it got to this. Seems like a situation of let's ride the free customer acquisition and figure it out later.
They happily took the huge influx of new users that had no knowledge of this. And many got screwed. They couldn't average down on their position. And a ton of buyers were removed. So the price got out of control. Many panicked because of it.
I'm not on RH but added more at 170 and it came with several partial fills of 1 and 2 stocks. That was RH users getting screwed as a ton of buyers were removed. Trading was not halted on the downward spiral.
They could have said - hey guess what - 750k RH users (whatever it is) that own GME cannot buy this stock, so consider this before you sell. Some kind of warning that passed the attorneys. How could they not see this coming?
Any way it went down - RH is done. I hope they "pivot" into a worse situation.
Correct me if I'm wrong, but that was at the end of the trading day, when people already made it clear their original BS blog post wasn't convincing anyone. IMO Robinhood is clearly in the wrong. It may not be as malignant as the Citadel collusion theory, but they did in fact treat their own customers like idiots. And it backfired.
Not going to defend RH, but I have some insight with regards to corporate communications.
A company in panic fire extuingisher mode has to put out some type of announcement. RH did. Twice in one day. I can believe the first one was a canned response, and the second one looks like a more thoughtful letter.
But have you ever thought how much internal wrangling, or how many draft revisions even such a short piece has to go through? The company has to be very careful in what they say in their comms - plus even more cautious with their phrasing and wording used. These types of comms will be read by arms chair lawyers and real lawyers alike. The latter will look for opportunities.
The former will read it like they were the devil's advocate themselves.
Corporate comms teams have to put in a lot of effort, and go through numerous rapid iterations, to make sure their published material is factually accurate and anodyne. In a crisis situation, even more than usual.
Yeah, you're right. I think this article lacks specifics, but they did mention capital requirements. I was referring to their previous blog entry: https://blog.robinhood.com/news/2021/1/28/keeping-customers-.... In addition, their founder @VLAD on Twitter cited misinformation as a reason.
As for conspiracy, I'd venture to guess that inconsistencies/hypocrisies and opacity turned people into cynics. I'm not saying RH is hypocritical, by the way. Instead, the hypocrisies of other platforms made people trust RH less. For instance, I saw numerous accusations that RH was helping wall street by limiting buying but not selling.
This came out after the market closed, but the limitations were put in place before the market even opened.
Plus, they never give a reason in this. They make vague references to things that could be a reason, but don't clearly state what the reason was. Leaving it unclear like this is horrible PR, and will continue to let the conspiracies spread.
That blog post was much more vague, and harder to understand than the clear explanation two comments above. I can now see that they're obliquely referencing their collateral requirements, but that wouldn't have been clear to me before reading JumpCrisscross's comment. I think g9yuayon's point stands.
There were allegations RH did a large sell-off today of client's margin positions today presumably in order meet collateral requirements. It's possible they realised it'd really not be in their client's interest to telegraph that ahead of time.
Also why would they not send a message out ahead of time if this was the case? Surely they were aware of this potential risk? Completely unacceptable to not inform users ahead of time.
I'm not sure "we had to stop people from using our app because it was going to put us out of business" engenders much confidence in either the users or the shareholders.
Crisis communications is easy to mess up and companies do not prepare for it in advance. I imagine it's a lot like the very first time an app you've built crashes really bad. Without any planning it's easy to panic and actually make things worse.
The only communication I saw from Robinhood is that they had to stop trading due to volatility. I think people jumped to the conclusion that it was them trying to act in their users interests.
The volatility was going on for days, yet they said nothing. They programmed their platform to block trading in advance, yet gave no prior announcement or warning.
A well-known investor with integrity publicly mentioned personal issues with the co-founders' integrity in the past.
I like this comment. I am going to buy and hold this comment forever. lolz
Your comment sounds similar to the explanation from the mouth of Interactive Brokers chairman and founder Thomas Peterffy [1]. His comments are based on a broader concern beyond just Robinhood.
I think a lot of people don't understand what I can only describe as the physics of the system. Like a utility, there is only so many electrons that can get pumped through the system from generators through the transmission system, through substation and distribution networks to your house. It is big and powerful, but if there is an unplanned for event that draws too much power it doesn't matter how much generation you have, the system just can't take it. Substation will pop, power will go out if not isolated.
Robinhood is small player that could never have planned for this type of event and likely doesn't want this. Most retail shops likely don't have the sophistication to handle an event like this.
> Robinhood is small player that could never have planned for this type of event
I disagree. It wasn't that long ago that securities and cash from unsettled trades were unavailable to customers. The modern abstraction of frictionless trading is just that--an abstraction.
Adding "free" to the mix removes a balancing factor. (Less cash coming in at t=0.) Becoming a clearing broker removes another, though it adds control. There are vendors selling off-the-shelf systems to calculate clearing margin requirements and risks real time. I'm looking forward to hearing if Robinhood used one of those, or if they tried to roll their own.
Either way, it's not an excusable pain point to push to one's customers. Particularly not retail customers. Particularly not unsophisticated retail customers. These are complicated systems, far more than most professionals fully grasp. A simple back-up plan, like a fallback introducing broker arrangement, would have avoided this whole mess.
> There are vendors selling off-the-shelf systems to calculate clearing margin requirements and risks real time. I'm looking forward to hearing if Robinhood used one of those, or if they tried to roll their own.
This would be really interesting to know. If you find out, please do post it.
> I think a lot of people don't understand what I can only describe as the physics of the system.
Market microstructure is a term I've adopted when studying options and the circumstances where they influence the underlying market prices more than any other factor.
HFT firms are apparently hooked up directly to the exchange. So they probably settle trades in real-time. The whole chain of retail to broker to clearinghouse is what creates the need of credit-collateral at every stage and create systemic risk if some players don't have the right risk control in place. At least that's what I have figured from a few hours of reading.
They do not. They settle trades in 2 business days like everyone else. Think about it: if you sell a share to a HFT, how could the HFT receive it immediately when you don't need to deliver it for two days?
However there is a process called CNS (Continuous Net Settlement) which means you generally only have to settle the net of your trades each day.
I've seen this around the internet and I have one honest question for clarification:
- How come a bunch of other brokers also stopped the trading in these assets? (Webull, Ameritrade, e-trade etc) did all of them end up in this state?
(I'm always worried questions like these in times like these are interpreted in bad faith, but this is an honest question, trying to understand the powers behind it)
Peterffy of Interactive Brokers said essentially the same thing. The broker is on the hook for the money as far as the clearing house is concerned. If they cannot get it from their customers, they will be left holding the bag. And in a security as volatile as GME, that could certainly happen.
In fact, we have seen things like that happen before. Forex broker FXCM blew up after their customers lost large amounts of money in the Swiss Franc in early 2015.
Surprisingly Peterffy came across as super transparent, trustworthy and honest unlike Vlad. He stated outright this was a joke and and that GME is a $17 stock trading at a crazy price because of some games (short squeeze) and he's not sure the people on the hook to pay up for the shorts are going to be able to- which is why they have to stop and get a handle on it. https://www.cnbc.com/video/2021/01/28/pro-watch-cnbcs-full-i...
.
They key point that's missing here is that ALL stock trades are on "margin" because in reality it takes 2 days to settle a trade, but that is abstracted away from you by the brokerage and clearing house, and made available to you instantly.
Caveat: I'm just starting to learn about all this, so it's probably not a perfectly accurate analogy.
Well not really, a lot of people were transferring money into Robinhood but they let you trade before the money is available. I imagine that had a huge impact on their cash crunch. Still weird they weren't straight forward with the reason or why they wouldn't enable trades for cash accounts.
Robinhood has defaulted new users to "Robinhood Instant" for years now
So the "default" RH experience is heavily based on margin but *not! in a transparent way. Deposits from banks are instant under a certain amount (10k for me but it varies) and no T+2
It should be mentioned that Ribbonhood has a history of eating losses when kids go hundreds of thousands of dollars in debt from bad bets. They simply ban the user instead of pursuing them into bankruptcy.
This is tangential to RH, but nevertheless related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations?
What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?
I found it difficult to understand the intricacies related to this question.
Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...
What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
Ok, so they can do what Merrill and other brokers did and require you to have 100% margin restrictions to ensure they get their money from you.
And let's not even begin talking about how they halted only buying and not selling. Or that they delisted the entire stock from their platform so you couldn't even search it.
The volatility of the Gamestop is just insane. People think it's because of the short squeeze, but it's not just that but the fact that the stock goes from $100 to $400 to $200 within the hour, and then as OP mentioned you end up with a lot of your liquidity stuck in Gamestop until the contracts settle.
I sure hope that GameStop or whatever companies are affected that their corporate employees aren’t in a sell blackout period. Usually you can’t sell for a few weeks before earnings are released. If you’re just a paper pusher, I would consider taking a slap on the wrist.
Yeah, I was saying if I were an employee I’d take the slap on the wrist. Likely life changing money on the table. Maybe look into doing what Mark Cuban did with his costless collar if the shares are locked up at a company controlled broker. Although volatility may make that less of a good deal.
In the current environment, it would be impossible to find a long dated symmetrically priced collar like Cuban did. Everyone knows these hype stocks will eventually tank, it's just a question of how and when.
Pretty sure right now you will be looking at more than a slap on the wrist. DOJ and SEC will be looking to take their pound of flesh from anyone who did anything outside the letter of the law on this thing. Not good to be the sacrificial lamb they hold up to show the public they prosecute Wall Street scammers.
The news did not cover the nature of the limitations, they just said limitations. I called TD early in the day and the limitations were not about buying stock but rather about selling ("shorting" options), and buying/selling spreads (a combination of options with interesting characeristics).
There are two classes of broker here -- brokers that are backed by Citadel, and Brokers that have a different market maker/clearing house and/or are not exposed to Citadel. The WeBull CEO did an interview mid-day and noted that certain market makers and institutions (i.e. citadel and/or Robinhood) were calling banks for bridge loans in the middle of the day. He also mentioned that Melvin Capital was bankrupt. I think Citron got out (that's a different story) a couple days ago or so.
I stand corrected -- thank you for clearing this up, this completely explains it.
It does not explain why Fidelity allowed purchasing the stock however though, which means I was likely wrong about the link altogether. Thanks for pointing that out.
[EDIT] - Is it reasonable to assume that maybe TD and Fidelity have a venue that the others do not have and that's the reason? When I compare RH, WeBull, Fidelity and TD I see UBS Securities, LLC as the standout difference.
Was UBS choosing to route the orders (I guess they have none of the shorts on their books? or they properly managed their risk?) while the others didn't touch it?
I was wondering about this too then I thought about people trading out of regular stocks and buying GME/AMC. When you sell a stock today you get the cash two days later, but your broker will let you buy today and normally they will settle together. It sounds like the clearing houses were demanding 100% today for any GME buys. So if you had customers selling $1 billion of regular stocks and buying GME the brokerage would have to come up with $1bil today or get closed down. I'm guessing they're scared of that happening.
I have an ETrade account and was able to enter orders (well away from the market) to buy GME at several points this afternoon when twitter was blowing up with the RH restriction news. I haven't seen any evidence that ETrade was blocking new purchases and have first-hand evidence they were accepting my buy orders.
(I hold no shares of GME stock and never have. All these orders went in exactly as normal and I was able to cancel them several minutes later.)
Moving forward, can anyone with the expertise comment on what is the right way to evaluate an exchange? why was Think or Swim and ETrade okay and insulated from the issues these other exchanges had?
These are weird times. It depends what you want. I think for most people being able to buy GME yesterday is not an important factor in choosing a broker. If you just want to buy some stocks as an investment any modern broker is probably fine. I dont like RH because it gamifies something that should be serious but for most people it works great and low cost is very nice. For me I 'd rate brokers on 1) Security, 2) Cost 3) availability of products like foreign stocks 4) gui usability 5) reliability 6) tax statements 7) margin costs 8) other products like debit cards/crypto. This list should be different for different people.
Relevant to yesterday’s Robinhood actions in $GME? That they were not being blocked from entry at ETrade, contrary to what RH and WeBull were doing and contrary to some reports lumping ETrade into “the conspiracy”.
I wasn’t in GME, but I want to know how my broker is handling unusual market conditions.
Especially in "order flow" schemes, brokers accepting trades but either not executing them or executing them at different prices is a commonplace. It's great that your experience at ETrade has not included this, but if you ever decide to actually trade a "crazy" stock the outcome might be different.
Webull isn’t a brokerage, they use apex under the hood. Ameritrade won’t let you trade on a margin with the highly volatile stocks due to risk. E*TRADE is probably the same.
I think the situation is exacerbated by the fact that RH gives up to $5,000 to new accounts without any collateral. Depending on the speed of bank transfer, RH might be on the hook to settle trades. Now, I imagine their new account trend was more or less predictable until last week but they probably got a ton of new accounts as a result of GME.
It would have been more palatable if they had reduced margin available to new accounts, or even stopped allowing new accounts for awhile. That would have been a black eye for them but much less severe than what they did instead.
RH was the number one downloaded app just a couple of days ago. They must’ve gotten at least a couple of hundred thousand new accounts. Even at $1,000 average deposit, you’re looking at hundreds of millions to cover for a day or two. That said, I highly doubt they’re in trouble. JPMorgan/Fed likely have RH covered.
But does that explain why they didn’t just prevent trading on these names unless your cash balance is settled and nothing on margin? They already have a mechanism for that.
Imagine half of your userbase, especially almost every single new user onboarded this week, explicitly only wanted to trade on specific symbols, and you don't allow them to do so for 2-3 weeks (ACH settling period) at all.
Except JumpCrisscross, they shut down trading on much lower price stocks liked $NAKD as well, which given the fact that they still were able to meet collateral (based on price per your [2] right) for the activity on all of their other stocks, why couldn't they on a dollar stock?
This is exactly correct, but you know without a doubt folks knew they were in deep last Friday the 22nd (with 0 OTMs). RH's risk department must have taken the week off, and shown back up the 28th at 4am Eastern.
The issue I have, is that I completely understand and expect this to happen, but not as laziee faire. FINRA should have been (also could have been, we don't know) up every orifice on every floor starting at $70+ a share for GME.
Also for as many many contracts to be written at insane IV, this isn't just RH who is at fault. This was literally thought to blow over and didn't -- that's not risk mitigation, that's laziness.
So the problem I have is that they didn't limit the margin requirements last week, got greedy on the potential 'gains' on the fees, and got slammed.
We will see if the 0-fee environment stays -- I hope it doesn't. It completely changes the risk profile of the individual trader were a $5 per trade fee on your one share only covers 1/2 of your fee.
But don't give 'solidity to pure wind' here[0] -- this was absolute negligence on multiple parties.
Edit: I've also always thought that the secondary market is a moral hazard. Primary Offerings are more pure in their 'economic productivity' than secondaries. Sure we can make long winded arguments that the stock price incentivizes executives to make long term decisions, secondary prices help your subsequent offerings, converts, etc... but the short of it is, at the time of a secondary transaction between Alice and Bob, $0 of effective capital is deployed to the actual investing machine... that's quite wild.
Edit x2: And the secondary moral hazard is compounded by this 'liquidity' boogyman that we must keep satisfied -- or else people will actually have to hold their positions until they get a good price.
Final edit: If you want another take, here's another view of the mechanics of it all, and again, it didn't start today... it was a boiling pot they thought wouldn't boil over:
Thanks for the great comment, I'd like to tag something on here. There's absolutely a deeper history here that goes beyond the DTCC. I've written about it earlier, but sadly it's arcane and arcane things get little love,
I have been studying Real-Time Gross Settlement systems for the past two months, including questions of liquidity in settlement systems. The question at the heart of the banking system is quite simple, if banks take capital from customers and use it to provide debt to others, then how much money should they keep on hand for their customers' withdrawals and transfers?
This question is hard to answer. As there is a conflict between what the bank does (i.e. provide debt), and how it is supposed to provide it (by taking savings etc.). Everything else, from central banks "offering cheap liquidity" is an add on. They are mechanisms that allow - for example, a bank to easily borrow this money so that they can cancel it out/repay it from transactions coming into their banks.
What makes it all borked is that you can't trust bankers with their grandmas. If there is a flaw, they will exploit it. Every major change has led to an exploit. E.g. In 1918, the American Government introduced the Leased Wire System that used the telegraphs and a network of 12 Reserves to allow banks to transct with each other across CONUS. It reduced the average time for cheques to be cashed in at banks across the country from 5.4 days in 1912 to just 2.4 days. Theoretically, this reduced the risk taken by banks when they transacted with unknown banks across the country, with the Government acting as the escrow. It catalysed innovation and led to an explosion of financial services across the young country.
The system was supposed to be foolproof by reducing the time "credit" was needed to make transactions. Essentially, until one bank sent the money and the other got it, they were operating on a system of credit. And they would "net" the books at the end of the day/week to physically transfer assets. FedWire (Leased Wire System) made everyone feel safe by sending notes of the transactions across great distances. But the netting still took time. All it took was one bank to fall behind on current obligations to other banks for all of the banks to collapse, leading to the Great Depression.
Important people got together and made rule changes to fix the problem. But then they innovated again. The Federal Reserve started making Automatic Clearing Houses (ACHs) and Remote Check Processing Centres (RCPCs) to make settlement faster, starting in the 60s and precipitating in 1972. This made settlement faster therefore safer. And it led to great financial innovation. The magic of computers and innovation meant that people could use these same systems to transact across the world!
Until in 1974, when the German lender Herstatt collapsed due foreign exchange investments based in the Dollar, which caused the bank to fail to meet its settlement obligations...
> That day, a number of banks had released payment of Deutsche Marks (DEM) to Herstatt in Frankfurt in exchange for US dollars (USD) that were to be delivered in New York. The bank was closed at 16:30 German time, which was 10:30 New York time. Because of time zone differences, Herstatt ceased operations between the times of the respective payments. The counterparty banks did not receive their USD payments
In response, important people got together and made rule changes and a new system called the Bank for International Settlements. Under the new systems, more computers were added and were linked together with the aim of reducing settlement time... You can see where this is going.
This is a simplified history. But the history of banking is the history of doing settlement while managing liquidity and counter-party risk.
Like it or not, we've hit a wall here because these systems were never designed for such circumstances. Perhaps it's time for the important people to get together again?
Shameless plug... Having worked on such systems, I recently wrote an article explaining real-time payment systems, some of which use real-time gross settlement:
Market markers and other institutional participants don’t want instant settlement, as it its a liquidity risk. It’s why you’ll see T+2 go to end of day settlement eventually (imho), but will never see real time settlement from centralized finance. Decentralized finance would improve upon this, with the trade off of having a low volume ceiling (due to network transaction limitations).
The problem with this position is that it's false. I welcome corrections, but there is a wealth of literature on this topic. For the past two to three decades there has been a small cottage industry of research in Liquidity Savings Mechanisms that are designed to prevent this scenario through clever system design.
These mechanisms have been evaluated, simulated, and tested by central banks at greater volumes than DTCC's system. The difference here is in orders of magnitude. The Feds handle $2+Tn./day. They handle $500Bn/day at most. If the Feds can introduce these systems and maintain liquidity, then what reasoning does DTCC have?
I am loathe to cast aspersions, but the aspersion I'm casting here is that they're dragging their feet, as it would effectively end an entire sub-sector of the industry. Or, at the very least, substantially re-order it. This inefficiency is someone's margin and profit.
Maybe this is an attempt to force that change to be faster? It really should be faster today, clearing sped up.
The lag for bank account transactions makes sense to wait to make sure money is there and no fraud. However, once money is in an account at an approved FDIC/SIPC insured (preferably both, Robinhood is only SIPC) brokerage it should be much faster, at least up to the FDIC/SIPC limits. There is really no reason why it shouldn't except to help market makers have the upper hand.
This could be the root of what may need to change or was desired to change with this black swan event.
Faster settlement means less time to discover and correct mistakes.
At a high level, nobody really likes trades being broken, but it's kind of a necessary "evil" that helps stabilize the entire system.
Let's say settlement happens in one minute, one morning a pension fund fat-fingers a price and loses 10 million USD to some student in her dorm room. That afternoon, the student then donates 1 million USD to an orphanage, pays off her grandparents' mortgage, buys 1 million USD worth of municipal bonds to finance a new baseball stadium, and buys several million USD in long-dated ETF call options. Some market-maker delta-hedges those options by buying the ETF. In response to the price move generated in the ETF, a large institution buys a basket of stocks and participates in the creation process with the ETF's issuer.
Now, what happens when the fat-finger is discovered and disputed? Too many things have changed for the SEC to break all of the trades and other transactions after the settlement. The student no longer has enough money to make the pension fund whole (even if everyone involved could agree that the most fair thing to do would be to limit the student to 100k profit and transfer the rest back to the pension), so I guess they're stuck with the pensioners having to live with that 10 million USD loss. "Oops, next time, make sure your pension hires a more careful trader, I hope you've learned your lesson" isn't very helpful advice to a retiree who's now out on the street.
> "Oops, next time, make sure your pension hires a more careful trader, I hope you've learned your lesson" isn't very helpful advice to a retiree who's now out on the street.
It's really not, isn't it? Almost like the dependency on human carefulness compromises the integrity of the whole system.
We've seen plenty of trading problems due to direct human error, and we've seen plenty of trading problems due to software bugs.
If we got rid of breaking trades, it would presumably force everyone to use carefully specified systems and use avionics-like development practices. Maybe we'd even see machine-checked proofs being compiled to programs and smart contracts via the Curry-Howard correspondence. Long-term, it would probably be good. In the shot term, lots of fallible counterparties going bankrupt would be very destabilizing to the system.
"make sure there is no fraud" takes a LOOOONG time.
It is the reason why a car bought from a dealer drives around without plates for a month. That's how long it takes the dealer to be totally sure the payment wasn't fraudulent.
While cash is the settlement vehicle of choice for dealer-less used car sales, certified checks (only legally issued by the federal bank) are preferred or even mandated for in-person government (surplus) auctions.
If you talk to the dealer in advance, to make sure they know about these certified checks, I'd expect them (over here, in DE) to hand you the title in direct exchange for the check, within an hour of you first setting foot on to the lot (assuming you called in advance so they have time for you and the car you want).
What you say about certified checks is, in theory, possible here. In practice the sales drones who handle these transactions have never heard of this and will treat you like you're trying to scam them out of a car somehow.
Also the title is never physically at the location where the car is sold from; the processing of titles for dealers has been outsourced to a handful of large companies who effectively act as warehouses for the physical title documents. Even if the sales drone wanted to go along and had enough clout to make it happen, it would still take an overnight-shipping delay to get the title to the buyer.
I know, it's kinda sad, tbh. Get yourself a taste of SEPA to see what you could have/use instead of ACH.
Nice to hear. And yeah, that's why I mentioned needing to call ahead to make sure that someone who can legally sign the contract is gonna be there and has sufficient understanding of how these certified checks look like/work.
Fair. Is that only for new cars, or does that include (independent) used car dealerships?
> A substantial amount of trades in the market are executed by liquidity providers that provide efficient two-sided
markets. These important trading firms trade on both sides of the market and are largely risk flat at the end of the
day. Real-time settlement would require these liquidity providers to have significant sums of capital and securities
on hand to make trade-for-trade deliveries.
The current infrastructure relies on the efficiencies of trade netting to accommodate substantial amounts of trades.
Wholesale market-making is important to the infrastructure as it provides the capital and balance sheets to back
customer trading. Significantly increasing those capital requirements by requiring pre-funding of all trades without the
benefit of recognizing the offsetting trades would substantially increase the costs of trade execution to the end user.
Real-time settlement could also introduce operational inefficiencies. In a typical low-volatility trading day, NSCC
and DTC process over one million shares per second on average, valued at over $16 million. During peak trading
hours, such as market open and close, this number spikes to over 300 million shares per second, valued at over
$25 billion. Settling these amounts throughout the day in real-time would introduce substantial financial and
operational risks to the equity markets.
Accelerated settlement that abandons the significant capital and operational efficiencies gained through
centralized multilateral netting would be a step backward for the world’s most liquid markets. Striking a balance
between the capital efficiencies of netting and the risk mitigation benefits of moving settlement closer to trade date
should be the goal of the industry.
Thanks! Replacing market makers seems difficult.
Edit: Why the downvotes? I'm quoting the article for easy access.
> Significantly increasing those capital requirements by requiring pre-funding of all trades without the benefit of recognizing the offsetting trades would substantially increase the costs of trade execution to the end user.
I don't see how this follows, if the trades are settled faster? Wouldn't you have to keep less capital on hand at any given time if you're settling trades faster? I'm clearly missing something, not sure what.
You aren't, there are netting, batching, and matching algorithms that have been developed for larger systems. The Feds, who process $2Tn.+/day, BoE, ECB etc have found these systems to hold up through trials, simulations, and implementations. DTCC, on the other hand, handles $500Bn.
I'm not an expert but how I read it is: market makers currently can sell a stock without owning it. All is well as long as they buy it back by the end of the day as settlement takes 2 more days.
If settlement was instantaneous then the market makers would have to already own a bunch of the stock in order to sell any. Owning stock requires capital. Similarly if they wanted to buy more stock they'd need cash on hand.
Would they though? If settlement was instantaneous for market makers, then obviously settlement with the brokerages would also have to be instantaneous. Then it's no longer an issue of verifying anything, the risk of proving ownership would fall squarely on the brokerages or whoever is initiating the trade with the market maker in the first place.
Most defi is on Ethereum, which is making large scaling improvements. Zkrollups right now do several thousand tx/sec without security compromises, and data sharding will expand that by 23X in about a year. This is still probably a low volume ceiling by some definitions, but it's at least in the ballpark of major systems like the VISA network and NASDAQ trades.
Further down the road, more efficient data witnesses give another 10X. Also, the power of individual nodes affects both the number of shards and the capacity of individual shards, so future scaling is the square of whatever Moore's Law has left to give us.
Can you think of a good reason why they just didn't freeze the whole market (buying and selling) instead of allowing institutional traders to buy and sell freely while only allowing retail traders to sell and in many cases forcing them to liquidate?
In my view the clearing houses had liquidity issues while many of their clients likely had solvency issues which this brick on buying alleviated.
Thank you for sharing. It is amazing to me how so many people in social media are assuming that Robinhood or others are teaming up with institutional traders to crush retail investors. It's not wrong to speculate about such possibility, but what I am seeing is people believing this theory with near-certainty, without understanding the underlying mechanics of trades, the regulations that govern it, and the kind of financial complexities firms like Robinhood can encounter.
I'm seeing some of that, but also a whole lot of "the rules are vastly in favor of the big guys - they can just stop trading when shit goes south, but us retail traders don't get to turn around and say 'nah bro, losing money, let's hit pause.'"
While that's not 100% accurate, it's in the general ballpark. And frustration with big financial players is high, and has been since 2008, for good reason.
A broker is just a service. As it turns out a low-cost/free service provides an inferior service to high-cost prime brokers.
You get what you pay for. That’s not a scandal. It’s common sense. It’d be like me complaining that it’s no fair that Google can afford better infrastructure than my startup search engine.
Day trading is not a human right. Anybody who wants trading infrastructure like Citadel is free to go out and spend the same hundreds of millions it took Citadel to build that infrastructure.
I don't think that's quite accurate either. It's not that RH's service is terrible, it's they had to cut trades to meet regulatory obligations. But, by only cutting trades in one direction. And that happened to be in the direction that favors their largest customer. And that customer also happens to be on the hook for much of the short squeeze... The optics are TERRIBLE.
They didn’t cut trades in one direction. They closed new positions in both directions. Buys were still allowed to close short positions, just the same as sells were allowed to close long positions.
That might be true if government and big finance weren’t so intertwined. A lot of these big players are propped up by endless QE, which will eventually hit normal people in the form of inflation and taxes.
> Anybody who wants trading infrastructure like Citadel is free to go out and spend the same hundreds of millions it took Citadel to build that infrastructure.
Well, no. Most people don't have that. "The rich get richer".
I believe throwawaysea's point is that the one thing has nothing to do with the other. Essentially, the bank weighing in saying "We don't believe your customers are good for this amount of money you claim they are good for." is, at heart, just financial prudence on the part of a trade's 3rd party backer. The other is criminal collusion on the part of people on the other side of a trade. But the 3rd party backer doesn't care about any of that as horrible as it may sound. They just want to be sure they can get their money from both sides, and they're not at all sure about that with these GME/BBY/AMC et al trades.
I get that, but the financial links between the players here doesn't look good, even if it's all legal.
Citadel bailed out Melvin.
Citadel is RH's biggest customer.
RH chops off the retail traders, but only in the direction that favors Citadel (and Melvin).
Was RH just ensuring they comply with regulations? Probably.
Does it look like RH is doing Citadel a solid at the expense of their users? Absolutely.
Thanks for spreading the word. The DTCC portion of this sounds like they had a "liquidity problem" in the sense that they were trying to prevent one.
The portion about not having a plan for when market makers don't want their action -- and they have to instead pay to use exchanges -- seems like a pretty stupid problem they set themselves up for.
I don't think the comparison to liquidity problem is accurate. The brokers cannot mint credit out of thin air if they don't allow margins. Hence, the cash in the broker is backed 1:1, and they won't have liquidation issues.
If Robinhood cannot fulfill these trades on margins, that is totally fine, they can halt on the margin trades if there are "liquidation issues". For all-cash trade, there shouldn't be any liquidity issues otherwise it calls into question how they manage their deposit.
The liquidity issues arise in part when trades occur on unsettled securities. Consider what happens if someone buys a stock, then turns around and sells it the same day to another counterparty. The broker has an IOU from one party for the stock, and has issued an IOU to another party. Two days layer, if the first party fails to deliver (oops, a short seller couldn't find stock to cover their short!), the broker's on the hook, at least in the short term.
Every RH trade is on credit, because it allows trading before ACH deposits settle and allows withdrawing or trading into other positions before trades settle.
>You've never heard of it unless you're a professional trader,
Or if you've seen/requested a stock certificate. It used to be fairly easy to get a paper certificate from a broker, for a fee on the order of $10. However I've read they charge as much as $500 now, in an effort to discourage ordinary people from doing it.
This explanation is unsatisfactory. If clearing stock trades were the problem, RH could have limited buy orders to fully cash-secured transactions only.
Surely this is only a problem if customer's dont have the cash. Eg I can imagine if people were funding their account with ACH or credit card payments it takes weeks to clear. It makes sense that RH would ban these from buying GME. But if you have cleared cash in your account I still dont see the cash crunch.
So what you're saying is by disintermediating share/derivative trading, one level of middlemen has been made obsolete?
Sort of like travel agents and airfares?
Why is this a problem? The fact that the share trading market is keeping these middlemen in place is part of the exploitation of the process.
Market makers perform a useful function in terms of maintaining an orderly market. Brokers don't. Especially ones that offer credit to their customers, thus hiding the risk to the counterparties of a trade.
This would be a great justification to pause this trading for all clients. The challenge is they didn't limit access for institutional while limiting access for retailers. This discrepancy is core to the feeling that Robinhood is supporting the financial establishment over their community of traders.
This makes sense. And it would make sense if they implemented this like a regular exchange-style trading halt -- no new positions in shares or options.
However, Robinhood disabled the ability to buy, but not sell.
TDA seemed to be preventing GME buys the other day even if you were closing a short call. I wondered if it was intentional or just that nobody thought about the implications of no buys.
>So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares' worth of collateral for every hundred it traded. That creates a cash crunch.
Why is this an issue? Shouldn't robinhood already have the cash, since the trader (who bought the stock) deposited the money into robinhood prior to his purchase?
Robinhood allows up to $1,000 to be used "instantly" just by the user initiating a transfer. So Robinhood doesn't have the money yet, but the user can buy stocks -- meaning they are using Robinhood's money.
Is there anyone that understands how this all works enough to tell us what would happen if the same number of hedge funds and banks, went out of business, as the number of small businesses that also went out of business due to COVID. What would the fallout in the economy look like? Worse? Better?
Lehman and Bear Stearns went out of business in 2008.
The mountain of derivatives that they were one of the parties to netted out at zero, but in the process, a lot of people got burnt, including the ultimate mortgagees.
The share market and its derivatives net to zero. It's a mechanism for getting capital flowing between investors and producers.
So, why can't a single investor with a network of bots create enough artificial volatility to kill whatever brokerage they like (presumably through proxy buyers), while shorting the brokerage itself?
> Then you have to consider how they're getting these accounts which need credit histories and social security numbers.
Presuming an investment advisor pitching themselves as providing some kind of standalone, non-brokerage-affiliated "AI Investment-bot-as-a-Service" platform, the "bots" could be being operated in the name of their clients, acting upon said clients' brokerage accounts, with full explicit consent. (Like how Mint operated in its clients' names upon their online banking accounts, with full explicit consent.)
Ironically, I believe Robin Hood themselves offered a similar "AI Investment-bot-as-a-Service" system; though theirs was a much more mundane design, legally, in that it operated upon the clients' accounts within the Robin Hood brokerage, rather than upon the clients' accounts in external brokerages.
Presumably a single person or small group attempting such would be engaged in market manipulation as traditionally understood, and the SEC would try to charge them. (But I am neither a lawyer nor a financial expert, so the above is just uninformed speculation.)
> Aren't they always need to route orders to the exchange in order to obtain the best price on behalf of the customers?
No.
Execution is matching a buyer and a seller. Settlement is handling payment. Clearing is re-assigning the securities. This isn't perfect, but it will do.
Exchanges deal with execution. (About a third of trading occurs away from exchanges [1].) The rule in America is you can't execute, on or off exchange, worse than the national best bid and offer [2]. That number aims to catalog all on-exchange quotes.
Once a trade is matched the exchange is done. Settlement is its own can of worms. This story is about clearing. The shares you bought need to get from their seller's account to yours. Then the shares you sold need to get from your account to their buyer's.
When you bought and sold the shares, the cash and shares "appeared" in your account. That's a convenient fiction. Cash doesn't move instantly. And securities settle over days. While all of that is happening, a complex web of credit arrangements keeps everything stitched together. Those arrangements have costs and risks. One of them is the requirement to post collateral as a safeguard against a broker breaking its word [3]. When those collateral costs get high, for example, because your customers are all trading risky things with high collateral requirements, it can create a cash crunch.
What's happening here has, to my knowledge, nothing to do with exchanges or execution.
[3] "But I don't trade on margin!" No, you don't. But you're still a borrower of sorts from your broker. When you buy a share at 11AM and then sell it at Noon, you've sold a share your broker may not yet own. That's the credit risk between you and your broker. If your broker bought that share at 11AM and sold it at Noon, it sold a share it did not yet own. That's the credit risk between the broker and the clearinghouse. Clearinghouses are nice. They usually say "give us 2% of yesterday's closing price in Treasuries. If you fail to deliver on a trade, we'll sell your Treasuries--maybe all of them, across all of your collateral with us--and make your counterparty whole." But when assets get volatile, the clearinghouse may want more than 2%. So it asks for that. Per its contract. But you don't have that money. And shit, Suzie just bought and sold the same shares thirty-six times in the last minute.
> Why doesn't that collateral apply to sales, which were still allowed on rh?
It does, ceteris paribus [1]. But blocking people from exiting a position you got them into, particularly something volatile and almost self-identifying as a bubble asset, is a lot more problematic than blocking people from opening new positions.
[1] The OCC (options) nets. If you have a large collateral requirement in a position and then reduce the size of that position with offsetting contracts, your collateral requirement goes down. I don't remember if the DTCC (stock and other things) does this.
So, if I understand you correctly, there isn't a secret puppet master cabal of lizard people from Nibiru pulling the strings of high finance.
Is there a saying akin to Hanlon's razor in this case, something like "Never ascribe to conspiracy that which is adequately explained by finite resources and inflexible rules/regulations"?
Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.
There are rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.)
In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares' worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. Done.
Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug.
[1] https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
[2] https://www.dtcclearning.com/products-and-services/settlemen...