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@Paekakboyz said in r/wallstreetbets, GameStop, and institutional investors:
I sure hope that whoever was applying pressure on Robin Hood to limit trading is willing to prop them up - they will be a long time, if ever, recovering from this piece of history.
That seems to stem from a misunderstanding of the requirements Robinhood has to meet under the Dodd-Frank Act.
This is a good (if lengthy for Twitter) read:
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@antipodean
Do you know if shorts were allowed to continue to short the stock on the day buying was banned?If the thread you linked is accurate, seems there is a systemic disadvantage to the little guy in this situation.
I hope the market can be allowed to work properly and short sellers become more cautious about (in Gamestops's case) being allowed to be 140% short its stock. I hope these heavily shorted companies continue to be targeted by the Reddit crew and no doubt funds going long the mania.
The short's goal with these loss making companies is to make financing more dilutive when capital is raised through selling shares. Thus, hoping to cause a death spiral financing situation whereby it becomes more and more dilutive and price lowering each time another round of financing is done, whereby the shorts increase their position further to drive the price down further.
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It's not over yet from what I've been reading. WSB expected a drop then apparently another surge is going to hit. Lots of hedge fund/large scale trading rather than the WSB crew + other minor players that was brining the price down.
Plus I've seen a fair bit of 'of course not you muppets' about MSM and commentators saying there is no way GME shares were worth $400. That's not the point with this shorts scenario. It's about the over extended shorts and the impact that will have over the next period.
... I think! I am white belt newb in this arena, but there is heaps of really accessible info and this shit is fascinating. Seemingly dirty as anything, particularly the big players influencing things, but so interesting.
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@Frank Was buying banned? The exchange’s systems kicked in when volatility exceeded the range and I understand that happened several times. But they are automated, as is the resumption in trading usually a few minutes later, and it’s not uncommon. If there was an announcement due that would create that volatility usually the company would ask the exchange to suspend trading in advance.
The brokers who implemented restrictions seem to have been those that specialise in retail, Schwab, Ameritrade as well as Robinhood, and that’s to enable them to refinance, which they are required to do. Do you have info that all brokers did this?
There’s another aspect to this, and that’s that market manipulation is illegal and if the brokers reasonably believed it was happening the regulators would have expected them not to assist. They have a legal responsibility to report market abuse. The EU, UK FCA and SEC all have rules about it. I’d be really surprised if the compliance guys at the brokers didn’t get very nervous when they realised this was coordinated.
Edit: just to be clear, the refinancing is something that would have been imposed by whichever clearing house the brokers are using (I presume it is DTC). They will have been told to lodge more collateral because the stock is volatile and appears to be overvalued, so that makes the risk of default high. The Dodd-Frank act that was supposed to mitigate systemic risk is behind the collateralisation requirements so it would be ironic if that’s what caused the restrictions.
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@JC
You know more than me.
Couple of questions.- Was shorting banned on that day they banned buying?
- Why was buying banned for those not going into margin to buy it? I don't understand why margin could not be banned but allow plain vanilla purchases where you cannot lose more than 100%.
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@Frank Unless I missed something I don’t think anything was banned, the brokers just stopped taking trades. I think there is a bit of an issue with how people perceive the market operating. When you place a trade with your broker you could be forgiven for thinking it all happens instantaneously but in reality most trades will take 2 days to settle and there is a bunch of organisations involved in making it happen. Central to all this is a few organisations called clearing houses. They operate in between buyers and sellers to provide stability by making sure that defaults don’t happen. Part of that is requiring all the participants to lodge cash as collateral which will be forfeit if they default on a trade. If their systems detect that there is trading happening on a participant’s account that has higher risk they will issue a call for more collateral to be lodged. That’s a real time process and they won’t take trades from you until the position is correctly collateralised. The brokers have no choice, they have to lodge cash and if they don’t have it they have to borrow it. Or they can’t get their deals settled. Of course they can push the cost back onto their customers, and in this case I don’t think many of the Redditors were expecting that.
It’s not exactly banning anything. It’s realising you can’t take deals that you’re unable to settle.
Bear in mind that this is an issue for a specific broker, not the market. Another broker who is better collateralised, or has access to liquidity to adjust their position, won’t have to stop trading. Even the ones who suspended trading managed to access credit impressively quickly.
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If what this guy says is true, the Robinhood app that lots of mom and pop investors use for share trading makes 40% of its income from selling users trades to the traders AHEAD of pushing your trades through, basically allowing them to trade on the information of all the Robinhood traders just before those trades hit.
I have NFI how this can be legal if that is the case...
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@Stockcar86
Doubt it.
That would be completely illegal.
Too obvious. -
@Frank further reading following my original post indicates that they do sell the data to high frequency traders (this was published back in June)
https://blockworks.co/robinhood-sells-your-data-but-does-that-matter/
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@Frank As I said earlier there were times when the stock exchange suspended trading due to volatility.. That happens automatically if the prices move out of range. It stops brokers from matching prices so that would stop all trading. But that is only momentary. During that time everybody would be affected but it would be for purchases and sales.
I’m not sure I believe that the entire market could sell but not buy. If you place a buy order you haven’t bought anything, all you’ve done is place a request. If you place a sell order all you’ve done is offer your shares for sale at a price. Trading is matched, by definition. It requires a buyer and a seller to agree to trade.
it is possible for an individual broker to only take sell orders, but that’s not the entire market, just their customers. If they do that it’s still about collateralisation (of the broker, by the way, not of the buyer, that’s irrelevant, it’s the broker’s account at the intermediary clearinghouse that needs to be collateralised). from the perspective of the clearinghouse sales aren’t subject to collateral requirements for the simple reason that it is purchases which fail for lack of cash. Sales fail for lack of stock. It doesn’t make sense to hold up the settlement of sales for one of these brokers because that’s what brings in the sale proceeds that they need to keep themselves liquid.
Funding of trades at clearinghouses is a difficult thing to get right. It’s pretty esoteric but the systems have to take into account something called chaining. If all your purchases settle first you need huge amounts of cash on hand to pay for them. That’s seperate from collateral which you have to leave in an account untouched. If you are settling sales in amongst your purchases you only need to fund the net of purchases minus sales. So institutions will try to coordinate their trading instructions with their funding movements. Intraday cash is expensive so they all try and do this “just in time”.
The point of the collateral is if one of your purchases falls through because you don’t have enough cash that would potentially cause problems for the broker who expected to sell you the shares. They might then have insufficient cash to complete a purchase at their end (for a completely unrelated stock) and you can end up with a knock-on effects that create a logjam that can’t clear until someone lodges some cash. The collateral is there to act as a guarantee that the purchase costs are in fact covered so that momentary insufficient funds doesn’t cause a systemic problem.
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@Stockcar86 It’s not only not illegal, it’s pretty much an industry. They call it PFOF - Payment For Order Flow. I’m sure there are brokers who don’t do it but I can’t think of any offhand. They justify it by claiming it offsets costs and keeps fees low, but we all know it is supplementary income for a lot of them. For Robinhood, who don’t charge fees, how do you think they earn money?
It’s honestly amusing that a bunch of people who probably have no issue with tech companies selling their data are outraged that this tech company is selling their data. As the adage goes, if you don’t have to pay for the product...
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Haven't read through all of this thread so it may have already been noted but an overwhelming majority of investments in hedge funds these days is from pension funds.
So in reality, the people these guys were fucking over the most, was in most likelihood their parents / grandparents.
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@MajorRage said in r/wallstreetbets, GameStop, and institutional investors:
Haven't read through all of this thread so it may have already been noted but an overwhelming majority of investments in hedge funds these days is from pension funds.
So in reality, the people these guys were fucking over the most, was in most likelihood their parents / grandparents.
Its not even just that, though I agree that's a thing. But this stock is now down to $90 from $400. How many retail investors got burned on the way down after buying late on reddit advice?
I'm not passing judgement on the overall process, but I definitely take offence at them aiming the narrative to be some democratic stand for the little guys. Seems massively hypocritical to me
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@voodoo said in r/wallstreetbets, GameStop, and institutional investors:
Its not even just that, though I agree that's a thing. But this stock is now down to $90 from $400. How many retail investors got burned on the way down after buying late on reddit advice?
Sorry, but everybody who bought on reddit, deserves to lose their investment & any broker who pushed on it, deserves to lose their license.
I'm not passing judgement on the overall process, but I definitely take offence at them aiming the narrative to be some democratic stand for the little guys. Seems massively hypocritical to me
Absolutely. Grandstanding about the brilliance of this on social media by many a born-again lefty is sickening. The little guys (reddit) fucked over their parents basically. The mega rich HF manager is one link in an extensively long chain. It's the same thought process that see's the same idiotic fuckwits calling for years long lockdown in London as the only people that get burnt are pret & landlords. Short sighted stupidity at it's very best.
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@MajorRage just on the 1st point, I think its a little harsh. Lots of little folk would have got swept up in that movement, thinking they were sticking it to the man. And they would have been burned. Should they know better? Yeah, probably. But some of these guys bought in $200 on the promise that it "would go to $1000!" and take out the bad guys along the way.
Naive? For sure
Bad people? I dont think so.
I hope there aren't too many sad stories of small value retail investors losing their shirts on this
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@voodoo said in r/wallstreetbets, GameStop, and institutional investors:
Its not even just that, though I agree that's a thing. But this stock is now down to $90 from $400. How many retail investors got burned on the way down after buying late on reddit advice?
A fool and their money are easily parted.
r/wallstreetbets, GameStop, and institutional investors