[AndrewBissell]

I certainly get pulling the plug on options, but I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread. If there's too much pressure on the buy side and you can't keep your position neutral, you just raise your offering price until you're not selling shares at too fast a rate anymore.

[JumpCrisscross]

> I don't understand how the volatility in $GME would lead a market maker to simply stop quoting the underlying stock altogether. If the price starts flying around you just widen your spread.

People after the financial crisis liked to talk about fat tails. Risk models assuming narrow tails, reality having a taste for extreme events. This is a fat-tail event. We don't have great models for stocks as volatile and as correlated as GME is right now. Which means for even cash equities trading, we don't have a great sense around what the appropriate spread should be.

Market making has sometimes been described as vacuuming up nickels in front of bulldozers. These are bulldozin' times. You don't want to fill a bunch of sell orders in GME right before it gaps down 80%.

[AndrewBissell]

I mean, we can see that this idea that the stock is too risky to quote is not true because there is a two-sided market in it right now, which can be traded on multiple platforms. The only actually existing peculiarity here is that Robinhood is not allowing customers in possession of 100% margin to open a new long position.

[JumpCrisscross]

> we can see that this idea that the stock is too risky to quote is not true because there is a two-sided market in it right now

On exchanges. Those are buyers and sellers as well as market makers. Robinhood connects to a subset of the latter.

[whimsicalism]

> Those are buyers and sellers as well as market makers.

Nope, pretty much just market makers.

[whimsicalism]

Hopefully others realize that downvotes on HN do not change the reality of how market makers function.

[treis]

Today it opened at $265, hit a high of $483 and dropped to a low of $112. At 2:00 pm it was $226, 2:05pm it was $431, and then came back down to $237 at 2:15pm. That sort of volatility is, I think, unprecedented which means the market makers don't have good risk models. So you're right that they could be cleaning up here with a large spread. But that profit comes at unknown levels of risk.

[dcolkitt]

An internalizer must match displayed NBBO at the exchanges. If it can’t, it has to route to the exchange, pay exchange fees, and on top of that still pay for the order flow.

Normally internalizers have no problem competing with spreads on the exchanges, because retail flow is much less toxic than the sophisticated traders in the public venues. But with GME, the retail investors are running the show.

Therefore it no longer makes sense for internalizers to pay for this order flow.

[cameldrv]

I don't think it's an issue of Citadel not quoting GME. In my understanding, Robin Hood is allowing purchases to close a short position, so there exist quoted prices, they just don't want people expanding a long position.

If this is coming from Robin Hood, they could make the (very weak) argument that they are protecting their retail customers from themselves, but if it's coming from Citadel, it just looks like market manipulation to me.

[jodrellblank]

I don't think it's coming from RobinHood; eToro is also blocking buys and they have the message "We have made this change following a notification from our liquidity provider that they have set $GME to close only status".

[andoriyu]

I got similar email from tasty. They said Apex clearing won't allow any new positions on meme stocks.

Given that it's not just RH, but nearly all, if not all, brokers that outsource order flow like RH...I think it's safe to assume it wasn't RH decision.

[whimsicalism]

You're making assumptions that it was the liquidity provider who pulled the plug and not the much more likely option that it was Robinhood pulling the plug for liability reasons.

[kosh2]

Tastytrade also restricted trade in the same manner. They send a mail to all customers and made it very clear that it was Apex Clearing who forced their hand. It is very unlikely that something different happened at Robinhood.

[AndrewBissell]

No, I'm granting that as the parent's premise. And what liability reasons would Robinhood have to disallow buying an NYSE listed stock with 100% cash?

[whimsicalism]

They've already been sued by retail investors who have lost their cash in the past and courts have already shown themselves to be somewhat partial to "the gamified interface just made me spend $1k I could barely afford because it was so fun!" arguments that RH is liable.

This is a much bigger deal, some (not hedge fund!) people are going to lose a crapton of money on it, and people are probably going to sue them once that happens.

You can see this discussed elsewhere in the thread.

[ROARosen]

> for liability reasons

For trying to get some positive media coverage, after being constantly bashed and blamed by them for the uneducated retail trader boom.

[totalZero]

Market makers on exchanges generally have a contractual uptime obligation if I am not mistaken, but I'm not sure that applies when talking about payment for order flow.

[Red_Leaves_Flyy]

Gme has been freezing up for a few seconds to fifteen minutes at a time for days now. Sounds like a breach to me, unless someone else ordered a halt. Robinhood itself was responsive, as were other stocks.

[selectodude]

Those are due to exchange LULD halts. Not brokerages.