[klintcho]

I've seen this around the internet and I have one honest question for clarification:

- How come a bunch of other brokers also stopped the trading in these assets? (Webull, Ameritrade, e-trade etc) did all of them end up in this state?

(I'm always worried questions like these in times like these are interpreted in bad faith, but this is an honest question, trying to understand the powers behind it)

[this_user]

Peterffy of Interactive Brokers said essentially the same thing. The broker is on the hook for the money as far as the clearing house is concerned. If they cannot get it from their customers, they will be left holding the bag. And in a security as volatile as GME, that could certainly happen.

In fact, we have seen things like that happen before. Forex broker FXCM blew up after their customers lost large amounts of money in the Swiss Franc in early 2015.

[vadym909]

Surprisingly Peterffy came across as super transparent, trustworthy and honest unlike Vlad. He stated outright this was a joke and and that GME is a $17 stock trading at a crazy price because of some games (short squeeze) and he's not sure the people on the hook to pay up for the shorts are going to be able to- which is why they have to stop and get a handle on it. https://www.cnbc.com/video/2021/01/28/pro-watch-cnbcs-full-i... .

[alasdair_]

Don’t they already HAVE the money from the customers? These are cash buys, not margin.

[anatari]

They key point that's missing here is that ALL stock trades are on "margin" because in reality it takes 2 days to settle a trade, but that is abstracted away from you by the brokerage and clearing house, and made available to you instantly. Caveat: I'm just starting to learn about all this, so it's probably not a perfectly accurate analogy.

[dawnerd]

Well not really, a lot of people were transferring money into Robinhood but they let you trade before the money is available. I imagine that had a huge impact on their cash crunch. Still weird they weren't straight forward with the reason or why they wouldn't enable trades for cash accounts.

[BoorishBears]

Robinhood has defaulted new users to "Robinhood Instant" for years now

So the "default" RH experience is heavily based on margin but *not! in a transparent way. Deposits from banks are instant under a certain amount (10k for me but it varies) and no T+2

[mike00632]

It should be mentioned that Ribbonhood has a history of eating losses when kids go hundreds of thousands of dollars in debt from bad bets. They simply ban the user instead of pursuing them into bankruptcy.

[sgregnt]

This is tangential to RH, but nevertheless related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations?

What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent?

I found it difficult to understand the intricacies related to this question.

Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price...

What mechanism are there in place to insure that ETF will not deviate from the underlying stock?

[TheKarateKid]

Ok, so they can do what Merrill and other brokers did and require you to have 100% margin restrictions to ensure they get their money from you.

And let's not even begin talking about how they halted only buying and not selling. Or that they delisted the entire stock from their platform so you couldn't even search it.

[zzleeper]

The volatility of the Gamestop is just insane. People think it's because of the short squeeze, but it's not just that but the fact that the stock goes from $100 to $400 to $200 within the hour, and then as OP mentioned you end up with a lot of your liquidity stuck in Gamestop until the contracts settle.

[bigmattystyles]

I sure hope that GameStop or whatever companies are affected that their corporate employees aren’t in a sell blackout period. Usually you can’t sell for a few weeks before earnings are released. If you’re just a paper pusher, I would consider taking a slap on the wrist.

[rblatz]

Yeah, I was saying if I were an employee I’d take the slap on the wrist. Likely life changing money on the table. Maybe look into doing what Mark Cuban did with his costless collar if the shares are locked up at a company controlled broker. Although volatility may make that less of a good deal.

https://www.acceleratedfi.com/real-world-options-example-how...

[ironSkillet]

In the current environment, it would be impossible to find a long dated symmetrically priced collar like Cuban did. Everyone knows these hype stocks will eventually tank, it's just a question of how and when.

[eunoia]

Interesting that Yahoo allowed option trading on the underlying security during the lockup period. Is that ordinary?

[wbl]

The bankers got a good deal smarter after that.

[bilbo0s]

Pretty sure right now you will be looking at more than a slap on the wrist. DOJ and SEC will be looking to take their pound of flesh from anyone who did anything outside the letter of the law on this thing. Not good to be the sacrificial lamb they hold up to show the public they prosecute Wall Street scammers.

[bigmattystyles]

I think you’re right, but unless you have insider knowledge that would move the stock, is trading in blackout a legal or corporate violation?

[rblatz]

I believe it’s a corporate violation. Since different companies have different blackout policies.

[hardwaresofton]

The news did not cover the nature of the limitations, they just said limitations. I called TD early in the day and the limitations were not about buying stock but rather about selling ("shorting" options), and buying/selling spreads (a combination of options with interesting characeristics).

There are two classes of broker here -- brokers that are backed by Citadel, and Brokers that have a different market maker/clearing house and/or are not exposed to Citadel. The WeBull CEO did an interview mid-day and noted that certain market makers and institutions (i.e. citadel and/or Robinhood) were calling banks for bridge loans in the middle of the day. He also mentioned that Melvin Capital was bankrupt. I think Citron got out (that's a different story) a couple days ago or so.

[wocram]

This is not true, Citadel is the largest market maker and is in fact TDA's largest broker. This is abundantly clear in 606 disclosures.

TDA: https://www.tdameritrade.com/retail-en_us/resources/606_disc... from https://www.tdameritrade.com/disclosure.page

Webull: http://public.s3.com/rule606/webull/606-BULL-2019Q4.pdf from https://pic.webull.com/PDFs/Disclosure%20of%20Payment%20for%... / http://public.s3.com/rule606/webull/

Robinhood: https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2... from https://robinhood.com/us/en/about/legal/

Fidelity: https://clearingcustody.fidelity.com/app/literature/item/990... from https://clearingcustody.fidelity.com/app/item/RD_13569_21696...

[hardwaresofton]

I stand corrected -- thank you for clearing this up, this completely explains it.

It does not explain why Fidelity allowed purchasing the stock however though, which means I was likely wrong about the link altogether. Thanks for pointing that out.

[EDIT] - Is it reasonable to assume that maybe TD and Fidelity have a venue that the others do not have and that's the reason? When I compare RH, WeBull, Fidelity and TD I see UBS Securities, LLC as the standout difference.

Was UBS choosing to route the orders (I guess they have none of the shorts on their books? or they properly managed their risk?) while the others didn't touch it?

[wocram]

It looks like the prevailing explanation is that DTCC increased collateral requirements and some brokers couldn't handle that.

https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...

[u678u]

I was wondering about this too then I thought about people trading out of regular stocks and buying GME/AMC. When you sell a stock today you get the cash two days later, but your broker will let you buy today and normally they will settle together. It sounds like the clearing houses were demanding 100% today for any GME buys. So if you had customers selling $1 billion of regular stocks and buying GME the brokerage would have to come up with $1bil today or get closed down. I'm guessing they're scared of that happening.

[sokoloff]

I have an ETrade account and was able to enter orders (well away from the market) to buy GME at several points this afternoon when twitter was blowing up with the RH restriction news. I haven't seen any evidence that ETrade was blocking new purchases and have first-hand evidence they were accepting my buy orders.

(I hold no shares of GME stock and never have. All these orders went in exactly as normal and I was able to cancel them several minutes later.)

[dmak]

Moving forward, can anyone with the expertise comment on what is the right way to evaluate an exchange? why was Think or Swim and ETrade okay and insulated from the issues these other exchanges had?

[u678u]

These are weird times. It depends what you want. I think for most people being able to buy GME yesterday is not an important factor in choosing a broker. If you just want to buy some stocks as an investment any modern broker is probably fine. I dont like RH because it gamifies something that should be serious but for most people it works great and low cost is very nice. For me I 'd rate brokers on 1) Security, 2) Cost 3) availability of products like foreign stocks 4) gui usability 5) reliability 6) tax statements 7) margin costs 8) other products like debit cards/crypto. This list should be different for different people.

[jessaustin]

What can we really learn from orders that never get close to executing?

[sokoloff]

Relevant to yesterday’s Robinhood actions in $GME? That they were not being blocked from entry at ETrade, contrary to what RH and WeBull were doing and contrary to some reports lumping ETrade into “the conspiracy”.

I wasn’t in GME, but I want to know how my broker is handling unusual market conditions.

[jessaustin]

Especially in "order flow" schemes, brokers accepting trades but either not executing them or executing them at different prices is a commonplace. It's great that your experience at ETrade has not included this, but if you ever decide to actually trade a "crazy" stock the outcome might be different.

[adrr]

Webull isn’t a brokerage, they use apex under the hood. Ameritrade won’t let you trade on a margin with the highly volatile stocks due to risk. E*TRADE is probably the same.

[sbelskie]

Webull’s CEO also cited DTCC fees as the reason they shut down trading on GME and others.

[tedunangst]

Same reason. They have similar agreements and requirements as RH.