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:
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.
[0] https://www.orwellfoundation.com/the-orwell-foundation/orwel...
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:
https://mobile.twitter.com/KralcTrebor/status/13549526861652...