The destruction of RH's reputation is irrelevant. Thanks to the increased collateral requirements, They were facing liquidity issues and had to restrict buying of GME. There was no way around that.
The problem is that they continued to allow customers to sell GME and lied about their rationale to their customers who could no longer buy it.
If a large broker exclusively allows a stock to be sold, not bought, the trajectory of that stock's value will be pushed downward. It's in RH's interest to see GME go down (or at least go up slower). Lower prices mean less of a liquidity problem for them. It also really helps out their biggest market maker partner.
It would not have been a conflict of interest if RH prevented customers from trading GME outright while they got their liquidity issue patched up. It would piss off potential sellers and, if the stock price went down, would result in objective losses for them which, IMO, RH should be liable for. That is a tough choice to make, but it would eliminate the conflict of interest.
A stockbroker's value is in enabling customers to easily trade their stocks. If they cannot do that, they deserve damage to their reputation. If they cannot do that without engaging in conflicts of interest, they deserve to be investigated. Last week they failed on both fronts.
So basically you agree that Robinhood stopped purchases of GME, despite the massive reputational risk it entailed, because they faced a very real risk of insolvency.
Nearly destroying your firms Brand as a favor for an easily replaceable market maker doesn’t pass any rational test.
> So basically you agree that Robinhood stopped purchases of GME, despite the massive reputational risk it entailed, because they faced a very real risk of insolvency.
I never said anything otherwise.
> Nearly destroying your firms Brand as a favor for an easily replaceable market maker doesn’t pass any rational test.
I cannot speak to how "easily replaceable" Citadel is. Given that RH chose them so much more over other market makers in recent years, I can only assume that Citadel's destruction would result in at least some financial loss for RH. I do not know what the extent of that loss would be, though. I suspect they would probably not consider it alone to be worth the damage to their brand.
While their action might have improved their relationship with Citadel, I agree that they would probably not consider it alone to be worth the damage to their brand.
There is also the matter of it being in RH's own best interest to have GME stabilize (and ideally decrease), regardless of any relationships they have with any market makers. As collateral requirements decrease they would be able to facilitate more trades, which is how they make money.
As someone speculating from the outside, I cannot say whether all or any of these factors were considered as part of the decision to restrict GME purchases while continue to allow sales. Maybe the idea of restricting sales never even crossed their minds. Maybe they just thought it would hurt their reputation even more. Maybe they thought it would open them up to liability if the stock value decreased.
The thing about conflicts of interest is you can make rational decisions despite them. But those on the outside can never be sure about your motivations. Hence why I believe an investigation is needed - especially when there are billions of dollars on the line.
The problem is that they continued to allow customers to sell GME and lied about their rationale to their customers who could no longer buy it.
If a large broker exclusively allows a stock to be sold, not bought, the trajectory of that stock's value will be pushed downward. It's in RH's interest to see GME go down (or at least go up slower). Lower prices mean less of a liquidity problem for them. It also really helps out their biggest market maker partner.
It would not have been a conflict of interest if RH prevented customers from trading GME outright while they got their liquidity issue patched up. It would piss off potential sellers and, if the stock price went down, would result in objective losses for them which, IMO, RH should be liable for. That is a tough choice to make, but it would eliminate the conflict of interest.
A stockbroker's value is in enabling customers to easily trade their stocks. If they cannot do that, they deserve damage to their reputation. If they cannot do that without engaging in conflicts of interest, they deserve to be investigated. Last week they failed on both fronts.