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by kelnos 1965 days ago
Wasn't a big part of this issue fueled by RH fronting the money for trades when the customer was transferring money into their account from a bank over ACH? Making ACH instant (which I believe is in the works) would solve that, not T+0 for settlement.

(I don't have a good feel for what was the bigger driver of RH's issues though: overextension because of slow ACH or slow trade settlement.)
3 comments
stu2b50 1965 days ago
No, brokers must front collateral to clearing firms simply because there's no inherent reason to trust any of the firms will have their capital or equity obligations in T+2 days. ACH transfers and margin, although possible reasons why a firm wouldn't have funds, are not the direct reason, which is DTCC requirements.
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paxys 1965 days ago
No, that was negligible. Robinhood actually fronts the least money out of all major brokers (something like $1000). And if that was the case the easy solution would be to block trades if your account didn't have the sufficient settled balance.
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totalZero 1965 days ago
> Robinhood actually fronts the least money out of all major brokers (something like $1000).

None of the brokers I have ever used have ever fronted me money. If the required equity isn't going to be in the account by the settlement date, they won't spot me so much as a fiver.

There's an argument to be made that Robinhood Instant is a violation of federal margin regulations because it allows margin risk to be taken in an account with no settled equity.

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paxys 1965 days ago
I can transfer $100K (or maybe more) from my bank into Vanguard right now and trade using it instantly while they wait 3-5 days for the deposit to clear. It is definitely a common practice among the larger brokers.
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totalZero 1965 days ago
Must be nice.
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elihu 1965 days ago
That may have been an issue in some cases, but even if RH had all the money in hand, they aren't (if I understand correctly) allowed to use their customer's money as collateral. So, RH has to put up their own money as collateral, and it's tied up for two days. They apparently didn't have enough funds to do that, given the trade volume they were experiencing. Also, under normal conditions the collateral requirements would have been a lot less.
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