[zenbane]

The big problem is a retail broker shutting down trading to protect hedge funds who were short. Confirmed in Congressional Testimony: "NSCC examined the market activity and clearing member margin requirements to consider whether it would be appropriate to adjust or waive the capital premium charge, as permitted under the applicable rule. NSCC determined that the spike in market volatility, particularly in the so-called meme stocks, was a material contributor to elevated VaR charges for several clearing members, including most of those subject to capital premium charges. NSCC determined that it would be appropriate to waive the capital premium charge for all clearing members, using the discretion provided in the rule to reduce or waive this charge.4 Just after 9 a.m., prior to the market opening at 9:30 a.m., updated daily margin statements reflecting the waiver were released in NSCC’s portal and revised excess/deficiency notices were emailed to clearing members. All clearing members timely satisfied their clearing fund requirements...NSCC’s role in the market is a neutral one. It does not impose trading restrictions upon its clearing members or their customers, and it did not instruct any clearing member to impose restrictions during the market volatility events of late January." - https://www.dtcc.com/-/media/Files/PDFs/DTCC-Statement-Febru...

[tptacek]

There's no evidence at all that any retail broker --- many besides Robinhood applied the same restrictions --- did anything to protect "hedge funds that were short", and substantial countervailing evidence. People have weird ideas about how settlement works.

[oakwhiz]

What countervailing evidence would that be? Do you have any links which explain what you mean?

[gruez]

eg. https://finance.yahoo.com/video/heres-why-robinhood-restrict...

[zenbane]

https://youtu.be/Yq4jdShG_PU

Here is the CEO of a big brokerage explaining how bad of a situation the hedge funds (shorts) were in, they made a terrible trade.

All you need to know. Shorts made a terrible bet and had Robinhood cut off retail to save their asses.

[tptacek]

This is WSB logic. More than one entity can, and usually does, make bad decisions in a volatile market.

[mbesto]

> People have weird ideas about how settlement works.

Just to be clear... I too am not aware of any evidence that this was the case. HOWEVER, there is a clear link of stakeholders between Citadel and Melvin Capital. Citadel provides the settlement for RH and it's entirely plausible that Ken Griffin reminded Robinhood who's paying their bills. RH had the shroud of legitimate direct financial reasons to stall order flow - so it was a win-win at the loss of PR/customer service.

[gruez]

>Just to be clear... I too am not aware of any evidence that this was the case. HOWEVER, there is a clear link of stakeholders between Citadel and Melvin Capital. Citadel provides the settlement for RH and it's entirely plausible that Ken Griffin reminded Robinhood who's paying their bills.

In other words, "there's no evidence that they did it, but they stood to benefit so they probably did it"?

[kasey_junk]

I’m not even convinced there is evidence Citadel stood to gain from Melvin doing well.

The terms of their deal weren’t disclosed but a lot of the news stories suggested Citadel got a slice of Melvin for a line of credit. That’s a pretty good distressed asset price!

[mbesto]

> Citadel stood to gain from Melvin doing well.

Not sure, but Ken Griffin personally would.

[mbesto]

> In other words, "there's no evidence that they did it, but they stood to benefit so they probably did it"?

Right. Speculative, but plausible.

[tptacek]

It's not plausible! Among many other problems, it effectively asserts that Griffin somehow muscled Charles Schwab at the same time as Robinhood. Citadel is a big company, but it's not that big. It's just a silly claim. People know one thing about this whole situation --- that Robinhood uses Citadel for execution --- and incessantly try to derive every other thing from first principles based on it.

[mbesto]

Here are the facts:

- Ken Griffin owns 85% of Citadel

- Citadel handles 40% of stock trades in the US

- Citadel has $38 billion of assets under management as of March 2021

- On January 25, it was announced that Griffin's Citadel would invest $2 billion into Melvin Capital, which had suffered losses of more than 30% on account of its short positions, particularly on GameStop

- On January 28, Robinhood, an electronic trading platform favored by many traders involved in buying GameStop stock and options, abruptly announced that it would halt all purchases of GameStop securities except to cover shorts and would only allow these securities to be sold if already held (but not sold short); the price of GME stock declined steeply shortly thereafter.

This is not a silly assertion.

EDIT: PS - I know US Senators can be silly, but here is the implication from a US Senator and former law professor: https://www.warren.senate.gov/imo/media/doc/02.16.2021%20Let...

[mbesto]

> it effectively asserts that Griffin somehow muscled Charles Schwab at the same time as Robinhood

I didn't assert that. Any brokerage that uses a provider for settlement was taking on additional untold risk (including Schwab). Schwab, in theory, has enough assets to cover something of that size of trading GME introduced but their clientbase isn't the same as RH, so the reputational risk was much lower. It was a precautionary move, not a "our company might go under and we're gonna piss off our key partners" type of move.

See my other note - you're wrong about the nature of restrictions and level of impact on Schwab vs RH (and other brokerages for that matter).

[oakwhiz]

>Citadel is a big company, but it's not that big

Nice try, but Citadel is the largest market maker and if it were an exchange (ostensibly, it might as well be one!) then it would be almost as large as the CBOE!

Source: Image from Quartz: https://i.imgur.com/SBzQn5C.png

[tptacek]

There's a lot wrong with this argument, but one of the most obvious problems with it is that lots of brokerages imposed limits on GME trading, including Schwab.

[mbesto]

I use Schwab. They only limited option trading, but I could freely buy and sell GME. This was true for many of the other major brokerages.

By all accounts, RH was the most restrictive and had the highest number of users placing non-sell orders. Very different ball game.

What else is wrong?

[gruez]

my reply from another thread: https://news.ycombinator.com/item?id=28000245