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This lawsuit will go nowhere. At best a tiny settlement after years of litigation. Congress will have a few hearings for show, so reps can get face time and claim to be "for the people". SEC will wag their finger, might even levy a few hundred thousand in fines.
Citadel and gang operate this casino. If they think they're losing, they change the rules so they aren't.
What it tells me is that they're getting increasingly desperate if they're willing to brazenly manipulate the market like this. Seems like they didn't close out their short position, like they claimed they had 2 days ago. It'd be interesting to see if the casino wins this game.
If that's the case, then the cost of violating rules for them is trivial enough that they can simply just keep doing this: 1) pump a stock price by allowing buy but restricting sell, 2) then they short this stock to 100%+, 3) they allow sell but restricting buy to collapse the price.
>> This lawsuit will go nowhere... increasingly desperate if they're willing to brazenly manipulate the market like this.
IDK... I'm probably missing something about norms or precedents, but allowing selling and not buying is not just brazen. It's straightforward enough that the average person is incensed and understands specifically why. This isn't systemic risk and turtle stack complexity.
This is probably my info-bubble, but nihilistic rage of WSB seems to be spilling out into the world. The social media (dischord/reddit) aspects, hedge funds, markets/brokers... it all adds up to symbolic whole that has ordinary people cheering on a bunch of maniacal gamblers. The SEC is looking more like a belligerent than a regulator.
Remember that the SEC is, first and foremost, a bunch of cowards.
I am less cynical or more optimistic. What they did is one of the most egregious acts of malfeasance I’ve ever seen in the markets. If there was ever a case for punishing a company, this is it. If the powers that be fail to do so, then get out the pitchforks and guillotines because this society is beyond fixing.
I think SEC greenlighted what in my view amounts to a highly illegal action by Citadel/Robinhood (as i think Citadel still has exposure, probably indirectly, on the short side). The situation in its nature does look like the CDS calls which caused the 2008 crisis. I think some "too big to fail" players wrote a humongous amount of GME/etc. uncovered calls (and similarly structured contracts) in the previous months which now threaten to take them down. I mean writing the $100-200 GME calls were practically free money back then while these days it has materialized as the tens of $B liability. Similar to CDS - the statistics practiced on Wall Street permits to have tremendously huge potential liability if it is at a very low probability. When such a low probability event happens though ... hopefully you're too big to fail and the system would then step in to save you by socializing your losses in some way.
So, before going outright bailout road which would be tough politically, i think big people decided to try to spread/socialize that "too big to fail" players' loss among the retail investors, and thus the stock buying block for retail investors (i'm voting with my dollar - have a bit of long of AMC).
> they're willing to brazenly manipulate the market like this
Evidence? The interview below (with CEO of broker Webull) claims that the clearing firms cannot (or don't want to) cover the increased cost when clearing these trades, and told many brokers that they won't open positions anymore, due to the two day settlement delay.
In other words, an entirely innocuous explanation.
>Congress will have a few hearings for show, so reps can get face time and claim to be "for the people".
That's the Congress of ten years ago. Today we have both parties reeling from a populist revolt and anxious to avoid another one (even as they cynically try to get as many points in as possible). Case in point: among the usual suspects tweeting we heard from one Donald Trump Jr.
I doubt that they'll do what WSB wants (whatever that is) but I think there's a relatively good chance of some significant legislation coming out of this.
Robinhood seems to have reversed on buying GME, though, at least for now, which pretty much invalidates the lawsuit (but doesn't prove it was useless).
“ANTHONY DENIER: Well, it wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing new opening positions in the three names, AMC, GME, and KOSS. Highly volatile, and what happens is this is not a political decision. And unfortunately, it got political. I think, you know, I think it was once said that don't let any good crisis go to waste. And that's clearly what's happening here.
And we're seeing politicians jump on the bandwagon so they can get-- so they can start trending on Twitter. But in reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.“[1] from the CEO of Webull.
ANTHONY DENIER (CEO Webull): [...] our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.
ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea.
But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?
ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position.
[...]
I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market.
And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.
Of course it's not political, in the sense that RH routes their order flow through Citadel's MM arm, who are probably getting squeezed by Gamma on their (previously) OTM naked calls, and if Citadel is the prime broker for all of these shorts _significant_ exposure on that end, as well as the exposure that Citadel hedge fund has on the short position through Melvin.
Robinhood does clearing by itself. Webull uses a partner company for clearing.
But still, I think that there are legitimate factors for why Robinhood stopped taking buy orders for those stocks, like ensuring liquidity through clearinghouse deposits while trades are underway.
This sounds very plausible, but: I don't remember any cases when I've ever heard of specific platform stopping trade for specific stock just for volatility. I've heard about the cases of trade stopping when something clearly going wrong - like market crash, or bot-driven feedback loop, or such. And this usually then comes for the whole exchange or all exchanges the stock is listed on, not just a handful of platforms. That of course doesn't mean it didn't happen - just that I haven't heard of it. So is such thing common and does anybody have examples of such things happening in the past - I understand it may not gather as much press as this one but somebody should have mentioned it somewhere? Is it indeed a routine thing that got overhyped, or is it an exceptional thing trying to hide behind a routine procedure?
If that's true (never assume something coming from Twitter is true without verifying, so it's still a rumor by now) then I don't see how "it's too risky" explanation holds. And of course selling somebody's property against their will is a fraud, at least on the face of it (IANAL).
From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel, which is also Robinhood's largest customer (buying user data, of all things) and maybe partial owner. I'm no lawyer, but to me it sounds like that might be a conflict of interests.
By preventing people from buying shares, the short-sellers have less competition to buy the available shares, and will have an easier time getting them, while paying less for them. Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
Citadel invested in Melvin this week at a steep discount, they do not own the majority of Melvin (at least that hasn’t been publicly announced).
Melvin announced they had cleared their position in GME days ago so is unlikely to be the driver for brokerage behavior today.
Citadel does not buy user data from Robinhood, they are one of Robinhood internalizers. They pay for the privilege of either trading against Robinhood based orders or routing them to an exchange.
Not allowing buys can happen for a wide variety of reasons from technical, business to legal to counterparty demands and isn’t necessarily signs of collusion.
That said there is certainly the appearance of a conflict of interest and I’m sure Robinhood will be addressing that in court and to investigators presently.
> From what I understand Melvin Capital, one of the biggest short-sellers that got in trouble, is owned by Citadel
No, Citadel does not own Melvin Capital. Melvin Capital received an investment from Citadel (the hedge fund, not the market maker) and Point72 this week.
> Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
Melvin already cut its losses this week, as was widely reported. There is no evidence for the counter claims that they're lying, which themselves originate on reddit. In particular: all the widely cited short interest figures on reddit which purport to show this are out of date (usually by weeks), and even if they were true, they would not be proof the short positions weren't closed.
The complaint is largely framed around "Robinhood prevented us from executing trades against GME, and it is contractually required to execute all trades." However, the actual contract explicitly says the opposite: Robinhood can choose to limit execution at its own discretion. So in order to win, plaintiffs basically have to get the relevant clauses of the contract to be ruled illegal. The extent to which this is possible is dependent on securities law which I am very unqualified to comment on, although I will note that the complaint does at least include some relevant allegations to what they need to do, which is better than other lawsuits I've seen (oh hi Parler).
Can someone, who has expertise in this field, explain what the hell happened? How on earth is it possible that all brokers at the same time disallowed to buy certain stocks? Who is responsible for this? The SEC, the FED, the White House, or..? Who gave the call? Who has that much power?
I'm not sure disallowing buying this stock is worthy of a lawsuit. However forcibly closing people's positions who already are long on GME like some are reporting on Twitter[1] certainly seems like a great reason to be sued.
Allowing a stock to become sell only will trigger a sell off and this WILL help the short sellers cover ( may be with reduced loss)..
Just allowing selling of a stock makes, free markets a joke.
I am seeing analogies like will apple store sell me a pixel 3a etc. This is not a product robinhood buys or sells , they make my transaction with a bigger shark (Citadel) who is in bed with the hedge fund who shorted ~112% of outstanding shares. When a group of people took advantage and created a squeeze, they block their ability to buy more to strengthen their squeeze.
It's funny that lawmakers so mad about Robinhood putting the brakes on this[1], when all I had been reading prior to this year how Robinhood was recklessly gamifying investing[2]. Some people are absolutely going to lose their homes / retirement savings at the end of all this. I have no doubt they would have faced lawsuits and calls for regulation had they done nothing.
They drew extra credit line today, and saying they cannot keep up with the capital obligations. It seems like they are insolvent for a moment today, not sure what's their current state of affairs.
RH requires much more SEC scrutiny really. A brokerage cannot go broke by facilitating trades, it supposes to be a risk-free business.
Okay, sure, so then block the entire stock for a while. What they did was block one side. They blocked people from buying but only allowed selling. Imagine all the market sells after that tanking the price.
This is so misguided. Why did people think they can put on a 8 sigma short squeeze on Robinhood of all platforms? That said this has gone mainstream and the ramification will be significant across the board from retail options to overall regulation on discount brokers to order flow sale. Net effect is likely higher cost of trading for everyone.
The system looks very fragile when something like that happens, and by being fragile it makes the stock going down which in return lot of people are loosing money.
They should have stop trading completely on those stock instead they stopped some people / service to purchase it but you can still sell, it's insane.
January 28th, 2021: we witnessed the most corrupt financial act of our lifetime as a one-sided stock purchasing restriction was placed on MILLIONS of people across the United States in the most critical time of “financial battle”.
[+] [-] dang|5 years ago|reply
The earlier thread about class action is https://news.ycombinator.com/item?id=25945447. Not sure if these are the same class action or just the same class action class.
The current thread is paginated like all the other big threads. If you want to see all the comments you'll need to click through the More links at the bottom, or like this:
https://news.ycombinator.com/item?id=25947814&p=2
https://news.ycombinator.com/item?id=25947814&p=3
(and so on)
[+] [-] nindalf|5 years ago|reply
Citadel and gang operate this casino. If they think they're losing, they change the rules so they aren't.
What it tells me is that they're getting increasingly desperate if they're willing to brazenly manipulate the market like this. Seems like they didn't close out their short position, like they claimed they had 2 days ago. It'd be interesting to see if the casino wins this game.
[+] [-] wbsun|5 years ago|reply
Is the society already working this way?
[+] [-] dalbasal|5 years ago|reply
IDK... I'm probably missing something about norms or precedents, but allowing selling and not buying is not just brazen. It's straightforward enough that the average person is incensed and understands specifically why. This isn't systemic risk and turtle stack complexity.
This is probably my info-bubble, but nihilistic rage of WSB seems to be spilling out into the world. The social media (dischord/reddit) aspects, hedge funds, markets/brokers... it all adds up to symbolic whole that has ordinary people cheering on a bunch of maniacal gamblers. The SEC is looking more like a belligerent than a regulator.
Remember that the SEC is, first and foremost, a bunch of cowards.
[+] [-] SilasX|5 years ago|reply
Wait, is Citadel a big enough player as to influence the regulatory system, like on the level of JP Morgan or Goldman Sachs?
[+] [-] voisin|5 years ago|reply
[+] [-] trhway|5 years ago|reply
I think SEC greenlighted what in my view amounts to a highly illegal action by Citadel/Robinhood (as i think Citadel still has exposure, probably indirectly, on the short side). The situation in its nature does look like the CDS calls which caused the 2008 crisis. I think some "too big to fail" players wrote a humongous amount of GME/etc. uncovered calls (and similarly structured contracts) in the previous months which now threaten to take them down. I mean writing the $100-200 GME calls were practically free money back then while these days it has materialized as the tens of $B liability. Similar to CDS - the statistics practiced on Wall Street permits to have tremendously huge potential liability if it is at a very low probability. When such a low probability event happens though ... hopefully you're too big to fail and the system would then step in to save you by socializing your losses in some way.
So, before going outright bailout road which would be tough politically, i think big people decided to try to spread/socialize that "too big to fail" players' loss among the retail investors, and thus the stock buying block for retail investors (i'm voting with my dollar - have a bit of long of AMC).
[+] [-] CamelCaseName|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] FabHK|5 years ago|reply
Evidence? The interview below (with CEO of broker Webull) claims that the clearing firms cannot (or don't want to) cover the increased cost when clearing these trades, and told many brokers that they won't open positions anymore, due to the two day settlement delay.
In other words, an entirely innocuous explanation.
[+] [-] goatinaboat|5 years ago|reply
Best investment money can buy is after-dinner speakers fees to people who then show up at the regulators.
[+] [-] scythe|5 years ago|reply
That's the Congress of ten years ago. Today we have both parties reeling from a populist revolt and anxious to avoid another one (even as they cynically try to get as many points in as possible). Case in point: among the usual suspects tweeting we heard from one Donald Trump Jr.
I doubt that they'll do what WSB wants (whatever that is) but I think there's a relatively good chance of some significant legislation coming out of this.
Robinhood seems to have reversed on buying GME, though, at least for now, which pretty much invalidates the lawsuit (but doesn't prove it was useless).
[+] [-] sbelskie|5 years ago|reply
And we're seeing politicians jump on the bandwagon so they can get-- so they can start trending on Twitter. But in reality, what's going on is that there is a two-day settlement between if you buy the stock today, those brokerage firms that you bought that stock on have to fund that trade with the clearing central house called DTC for two whole days. And because of the volatility of stocks, DTC has made the cost of the collateral of the two-day holding period extremely expensive.“[1] from the CEO of Webull.
[1]- https://finance.yahoo.com/video/heres-why-robinhood-restrict...
Edit: Non amp link.
[+] [-] FabHK|5 years ago|reply
More money quotes:
ANTHONY DENIER (CEO Webull): [...] our clearing firm simply cannot afford the cost to settle those trades. We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. And they simply can't afford the cost of that trade clearance. That is the reason why these stocks are coming off. It has nothing to do with the decision or some sort of closed room cigar-- smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.
ZACK GUZMAN (interviewer): [...] We had the CEO of Robinhood on yesterday kind of talking about why they were taking a different tact [sic] and not restricting trading because, you know, they wanted to leave it to their individual retail investors to make these decisions. Didn't want to step in and fuel into the nanny state idea. But what about maybe curbing this a little bit earlier? Because the fact of the matter is, you're going to have retail investors who are now kind of on the hook, who might want to dump some of these shares, who are stuck. And it seemingly looks like some of these moves have now triggered the bubble bursting. So what do you say to that?
ANTHONY DENIER (CEO Webull): Well, that's absolutely false, actually, Zack. There is no way that a customer would not be able to sell a position they hold. We are simply stopping opening of new positions. Liquidations can happen at any time. This is general market mechanics. We have customer protections in place. We would never stop a customer from being able to get out of a position.
[...]
I think when you say the regulators stepping in, it will happen on both sides. It's going to happen on looking into should a hedge fund be allowed to get a 10 times leverage and short 140%, 150% of a company. Should that be allowed in a regular-- you know, in a healthy market.
And then, on the other side, should it also be allowed to have mob and herd mentality of rolling into stocks? And should these things be curbed? Look at the examples that happened overnight in Australia, where a mining company, GME in Australia, was up 100% overnight because people just blindly went in on anything GME without reading below the headline.
[+] [-] u10|5 years ago|reply
[+] [-] einrealist|5 years ago|reply
But still, I think that there are legitimate factors for why Robinhood stopped taking buy orders for those stocks, like ensuring liquidity through clearinghouse deposits while trades are underway.
[+] [-] smsm42|5 years ago|reply
[+] [-] kart23|5 years ago|reply
https://finance.yahoo.com/video/heres-why-robinhood-restrict...
[+] [-] smsm42|5 years ago|reply
If that's true (never assume something coming from Twitter is true without verifying, so it's still a rumor by now) then I don't see how "it's too risky" explanation holds. And of course selling somebody's property against their will is a fraud, at least on the face of it (IANAL).
Edit: screenshot from reddit: https://pbs.twimg.com/media/Es1pb5KWMAE19CD?format=jpg&name=...
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] cure|5 years ago|reply
It seems that Robinhood does its own clearing (maybe not for everything?), cf. https://robinhood.com/us/en/support/articles/whats-clearing-..., so the story is probably a bit more complicated there. Could still be a similar dynamic, of course.
[+] [-] kkotak|5 years ago|reply
[+] [-] carstenhag|5 years ago|reply
[+] [-] mcv|5 years ago|reply
By preventing people from buying shares, the short-sellers have less competition to buy the available shares, and will have an easier time getting them, while paying less for them. Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
[+] [-] kasey_junk|5 years ago|reply
Melvin announced they had cleared their position in GME days ago so is unlikely to be the driver for brokerage behavior today.
Citadel does not buy user data from Robinhood, they are one of Robinhood internalizers. They pay for the privilege of either trading against Robinhood based orders or routing them to an exchange.
Not allowing buys can happen for a wide variety of reasons from technical, business to legal to counterparty demands and isn’t necessarily signs of collusion.
That said there is certainly the appearance of a conflict of interest and I’m sure Robinhood will be addressing that in court and to investigators presently.
[+] [-] fractionalhare|5 years ago|reply
No, Citadel does not own Melvin Capital. Melvin Capital received an investment from Citadel (the hedge fund, not the market maker) and Point72 this week.
> Robinhood seems to be manipulating the market to make it easier for Melvin Capital to cut their substantial losses.
Melvin already cut its losses this week, as was widely reported. There is no evidence for the counter claims that they're lying, which themselves originate on reddit. In particular: all the widely cited short interest figures on reddit which purport to show this are out of date (usually by weeks), and even if they were true, they would not be proof the short positions weren't closed.
[+] [-] bmitc|5 years ago|reply
https://twitter.com/justinkan/status/1354853920762253315?s=2...
https://www.reddit.com/r/wallstreetbets/comments/l747eg/cita...
This seems, at first glance, to be clear and blatant market manipulation by Citadel and Robinhood.
[+] [-] whitepaint|5 years ago|reply
[+] [-] nomad225|5 years ago|reply
https://twitter.com/AstralTrading/status/1354884246389874689...
[+] [-] efwfwef|5 years ago|reply
[+] [-] jcranmer|5 years ago|reply
The complaint is largely framed around "Robinhood prevented us from executing trades against GME, and it is contractually required to execute all trades." However, the actual contract explicitly says the opposite: Robinhood can choose to limit execution at its own discretion. So in order to win, plaintiffs basically have to get the relevant clauses of the contract to be ruled illegal. The extent to which this is possible is dependent on securities law which I am very unqualified to comment on, although I will note that the complaint does at least include some relevant allegations to what they need to do, which is better than other lawsuits I've seen (oh hi Parler).
[+] [-] whitepaint|5 years ago|reply
[+] [-] slg|5 years ago|reply
[1] - https://twitter.com/joemccann/status/1354859879337320452
[+] [-] totaldude87|5 years ago|reply
Just allowing selling of a stock makes, free markets a joke.
I am seeing analogies like will apple store sell me a pixel 3a etc. This is not a product robinhood buys or sells , they make my transaction with a bigger shark (Citadel) who is in bed with the hedge fund who shorted ~112% of outstanding shares. When a group of people took advantage and created a squeeze, they block their ability to buy more to strengthen their squeeze.
[+] [-] tqi|5 years ago|reply
[1]https://www.cnbc.com/2021/01/28/gamestop-cruz-ocasio-cortez-... [2]https://www.cnbc.com/2020/12/16/massachusetts-sec-o-commonwe...
[+] [-] paulpan|5 years ago|reply
The backlash seems so severe that I'm very curious about the rationale behind backroom decisions made that led to all this.
[+] [-] zionic|5 years ago|reply
[+] [-] 6nf|5 years ago|reply
[+] [-] liuliu|5 years ago|reply
RH requires much more SEC scrutiny really. A brokerage cannot go broke by facilitating trades, it supposes to be a risk-free business.
[+] [-] IG_Semmelweiss|5 years ago|reply
Robinhood has in effect cleared all its trades since 2018 as you can see based on their own page.
https://robinhood.com/us/en/support/articles/common-tax-ques...
[+] [-] rohitb91|5 years ago|reply
[+] [-] silexia|5 years ago|reply
[deleted]
[+] [-] hehehaha|5 years ago|reply
[+] [-] Thaxll|5 years ago|reply
They should have stop trading completely on those stock instead they stopped some people / service to purchase it but you can still sell, it's insane.
[+] [-] Triv888|5 years ago|reply
AMC - AMC Entertainment Holdings Inc.
BB - BlackBerry Ltd.
EXPR - Express, Inc.
GME - GameStop Corp.
KOSS - Koss Corporation
NAKD - Naked Brand Groups Ltd
NOK - Nokia Oyj
I guess they don't want to get sued (the biggest fear of most companies)
[+] [-] Nacdor|5 years ago|reply
https://cdn.robinhood.com/assets/robinhood/legal/Customer%20...
[+] [-] throwaway69123|5 years ago|reply
[+] [-] po1nter|5 years ago|reply
[+] [-] trevortheblack|5 years ago|reply
https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...
[+] [-] hnrodey|5 years ago|reply