[Miner49er]

I think this is jumping the gun. Robinhood takes some fault yes, but why are people ignoring the DTCC/clearinghouses role in this?

It seems they raised deposit requirements potentially more than was standard. This needs to be investigated.

WeBull's CEO claimed their clearinghouse told them to stop selling these securities (no mention of deposit requirements). If they really weren't even given an option to deposit more, that seems to me to be an abuse of power by the clearinghouse.

Finally, was the DTCC not having the long side cover the risk on the short side? It seems to me, the vast majority of the risk was on the shorts. The short side seemed to be made up of mostly large hedge funds, so if one went down, it would have been extremely difficult for the DTCC to front the cash on all of their trades, and of course shorting has infinite risk. The long side was finite, was distributed among multiple brokers and then even more distributed among retail investors. It seems like the risk was low there.

[rdsubhas]

People ignore the clearing house because they don't see it, they don't interact with it, and they don't have a customer contract with it. For all their practical purposes, the clearing house doesn't exist.

It's obvious from RHs statement that they are stuck between the DTCC and customers. They are not willing to call out the DTCC because they are fully at the mercy of it. So they are trying their best to be positive and forward looking, trying to offer help to rally around something totally outside their control (real time settlements).

[JumpCrisscross]

> they raised deposit requirements potentially more than was standard

What is your source for this?

DTCC collateral requirements are calculated using, more or less, a fixed, predictable formula. And the DTCC isn't the ultimate creditor in these arrangements. They are drawing on lines of credit from banks, who are ultimately taking the credit risk of the collateral being insufficient for settlement.

[kridsdale1]

Vlad said live on air (in Clubhouse) in conversation with Elon Musk on Sunday that the clearinghouse increased their requirements from (IIRC) 30% to 100%, and that the formula for calculating that was "not transparent" and had a component that was "a multiplier based on their opinion".

RH negotiated with them all Thursday last week and reduced the required payment from $3B to ~$0.7B. So it sure seems like the DTCC made an arbitrary decision to jack up systemic safety cushion that resulted in the RH clients turning very sour.

[totalZero]

DTCC has higher requirements for concentrated positions than for other uncleared CNS positions. Couple this with Robinhood laying out its own capital to fund margin trades and Robinhood Instant trades, and you've got some pretty aggressive capital commitments.

  (PROCEDURE XV)
  288
  II. if the absolute value of the largest non-index position in the portfolio
  represents more than 30 percent of the value of the entire portfolio (the
  “concentration threshold”), an amount determined by multiplying the gross
  market value of such position by a percentage designated by the
  Corporation, which percentage shall be not less than 10 percent. Such
  percentage shall be determined by selecting the largest of the 1st and
  99th percentiles of three-day returns of a composite set of equities, using
  a look-back period of not less than 10 years that includes a one-year
  stress period,2 and then rounding the result up to the nearest whole
  percentage.
  The concentration threshold would be no more than 30 percent, and would
  be determined by the Corporation from time to time and calibrated based
  on the portfolio’s backtesting results during a time period of not less than
  the previous 12 months.

Also, the fact that the man running Robinhood gave out material nonpublic information on a a private podcast with a billionaire says a lot about his judgment, in my opinion.

[JumpCrisscross]

> had a component that was "a multiplier based on their opinion"

I'll chalk this up to colloquialism. The DTCC has very little discretion in what they do. That's why they're trusted to do it.

The "opinion" component could be a reference to their line of credit banks, who adjust the rates they charge the DTCC based on their varied risk models. There is a valid argument that there isn't as much transparency in that layer as there could be. But that isn't relevant to this case.

Any off-the-shelf collateral cost estimation tool should have told you, given GME's realized volatility in the week prior to the fiasco, that it was a high clearing risk. If the CEO is getting blindsided by the DTCC at 3AM, it's a oversight of internal controls.

> RH negotiated with them all Thursday last week and reduced the required payment from $3B to ~$0.7B

Negotiating collateral requirements involves netting out trades and delaying settlement on some trades and accelerating settlement on others. It does not involve recomputing collateral rules. (The DTCC can't recompute collateral rules for one member over another.)

[jimmydorry]

To add to your comment:

In his chat with Elon Musk, the RH CEO said that Robinhood was given the $3B bill at 3am in the morning, and got it down to $0.7B after saying they would only allow closing out of positions for "meme stocks".

By his own words, RH took the first step to "change the game", which I am not really seeing discussion of anywhere. The DTCC certainly did not change any rules for them, but this still feels unprecedented.

[diebeforei485]

No, the multiplier is from the "Margin Liquidity Adjustment Charge". It was raised so the brokers had to front 100% of purchase prices for 2 days.

People keep referring to a super transparent formula, yet nobody has actually been able to point me to what this formula actually is.

Seems quite opaque to me, actually.

[Miner49er]

Not completely, they have the right to add charges. Take a look at this tweet:

https://mobile.twitter.com/KralcTrebor/status/13551753956420...

It seems that they used this right by the fact that Robinhood was able to negotiate their deposit [0]. The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible?

[0]: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...

[JumpCrisscross]

> The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible?

Netting out trades.

[tomp]

Which is such a basic idea that it’s impossible that they didn’t come up with it themselves and had to be schooled by Vlad.

It’s like the “smart guy” having an insightful moment in a sci-fi movie: “I got it, we’ll use gravity assist!” Astrophysics 101.

[auntienomen]

I think the point is that Robinhood made a promise to net out trades, by bringing some balance to the buys and sells in their book.

[tedunangst]

We may not find out this news cycle, but my guess would be they wanted collateral for pending trades, and they eventually agreed on future trades only. The amount RH eventually raised, $3.4 billion, is in line with that.

[robocat]

“ Mr. Denier said that Apex was told by DTCC that collateral requirements had been raised on transactions for GameStop to near 100%.” - https://www.wsj.com/articles/gamestop-trading-restrictions-b...

[NovemberWhiskey]

... and now you will presumably give us an example of a case similar to GME where collateral requirements were not raised so we can see that the treatment was not standard?

[alwayseasy]

Look to similar trades where concentration was as high as for GME.

[dataflow]

> DTCC collateral requirements are calculated using, more or less, a fixed, predictable formula.

"Less" might be accurate, given there's apparently a subjective multiplier. https://www.youtube.com/watch?v=2M7X2dsW_Xw&t=5m25s

[jb775]

According to the RobinHood CEO, the formula used is opaque and secretive.

https://www.youtube.com/watch?v=2M7X2dsW_Xw&t=5m25s

[themihai]

All of them are at fault. The broker, DTCC and the hedge funds. The market is not functioning as a free market or "it is rigged" for various reasons.

The CEO of the biggest brokerage company says he has halted the "buy" side because it wanted to protect his clients(hedge funds) and his money and it will resume the trading when the prices reaches $17. If you dig deeper you may find that the DTCC/clearinghouses may have a vested interest in a specific position as their investors may be invested in that position (i.e. short).

Of course there might have been just a risk management issue and no collusion but in practice and in essence as well this was just a way to save the hedge funds(the client)'s money and ripoff the retailers(the product).

[0] https://www.youtube.com/watch?v=7RH4XKP55fM