[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...

[tptacek]

It is entirely silly, as, for what it's worth, is Warren's letter. Virtu handles a comparable amount of stock trading in the US; maybe you think they can strong-arm Schwab, too? You can pretty easily pull up a list of firms ranked by their AUM to put that scary-sounding "$38 billion" in perspective, too.

[mbesto]

You keep saying it's "silly" and provide no specifics (the one you did was incorrect) and keep saying things like "they aren't even that large" without provide comparable numbers.

> maybe you think they can strong-arm Schwab, too?

I never said that, did I? I think its well known that PFOF is a controversial business practice because it can create conflicts of interest. That's not a new thought.

[tptacek]

It's well known on message boards that it's controversial. It's a universal practice in the industry.

[kasey_junk]

I’ll note Elizabeth Warren has made it a particular point of her platform to beat on Wall Street. I largely don’t mind cause someone ought to. But she is far from an unbiased source.

[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).

[kasey_junk]

I think you need to clean up your vocabulary. For instance Citadel doesn’t settle Robinhood trades. Further during this instance Robinhood cleared for themselves.

Providing payment for order flow neither means you are the settler or the clearer.

Effectively every entity that trades securities in the US has to be either a client of a member or a member of DTCC.

[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]

You can just look up the relative sizes of those firms, you know. It's funny that you came up with CBOE as your reference, because you can look up how big CBOE is, too.

[oakwhiz]

I'm not sure what you are trying to say here, but consider it noted - I'll take a look at some more up to date statistics soon.

[kasey_junk]

He’s trying to say that cboe is a particularly funny reference as they process minuscule equity trades. Which makes sense given they are an options exchange…