[inkaudio]

This is for stock sales which they did not restrict. Robinhood stopped the purchase of stock which does not require a collateral because the money is coming directly from the users cash balance. Don’t believe whatever they say, RH action was specifically to stop the short squeeze.

[jonp888]

This is just not true. They do have to post collateral for purchases, and the customer's own money cannot be used as the collateral.

[skedaddle]

Just curious -- why not?

[kasey_junk]

The search terms you want is “T+2 settlement”. TLDR all trades take 2 days to settle but brokerages abstract that via “loans” and collateral.

[tptacek]

Tell me if I'm way off here:

The clearinghouse collateral requirements in part protect the clearinghouse from things that can go wrong at the brokerage, like if Robinhood had a vulnerability that let people place huge orders without paying for them, and they were, like, put out of business overnight.

[kasey_junk]

The DTCC requirements are all about protecting brokerages (and other counter parties) from each other. Basically (and I’m not an expert in this) it’s a risk sharing scheme where if Robinhood (or any other broker) goes under all the other members cover the positions.

I don’t think it has anything to do with margin vs non-margin accounts for instance. It’s just a formula where you split up the outstanding shares by the VaR as I’d get a capital requirement.

[skedaddle]

Thanks. I don't use Robinhood but I thought your buying fund there consisted of actually-deposited cash. In that case why can't they use a customer's money to cover the collateral? Is it a business practice or a requirement for some other reason?

[kasey_junk]

A) no they, and most brokers will let you start trading as soon as you “deposit” money even though you have many days to reverse those deposits. But:

B) your shares trading immediately is a fiction. It takes days for those trades to settle. And any subsequent trades you make with those funds are all subject to credit risk. The central clearing house collateral rules are about risk management around that multi day float.

I think but am not an expert on this that the DTCC times explicitly require the capital to come from the brokerage not the clients. I don’t know why but can guess that it’s because it’s the brokerages taking on the risk not the individuals.

[skedaddle]

Aah ok my mistake, it does look like the "cash" account type is not the default. Thanks for the info.