Between the time the trade is executed and settled (takes 2 days), RH has a liability to the clearing house that settles the trade. Typically, a broker has a similar amount of unsettled buys and sells, so they their net liability is minimal. With everyone on Robinhood buying they now have a big liability to the clearing house. The clearing house requires the broker to post some money as collateral for this liability. It also sounds like the clearing house is requiring a higher percent of collateral for GME and other volatile stocks.
Robinhood is not allowed to use client funds as collateral (SEC rules to protect the client so until they get the stock, their money is safe). Thus, Robinhood needs to use a lot of its own money as collateral for the clearing house - even though they have not lost any money.
As you explain it, it seems like a very temporary problem. Since the trades clear every two days, they just need to borrow the amount it takes to withstand the heavy volume one time. They shouldn’t need ever increasing amounts of money unless volume of trading goes up even higher. I’m not sure how much higher it can really go, given that it was (I think) the highest volume traded stock for some of this time.
So I guess the lose whatever interest they have to pay on the borrowed money (it doesn’t sound like the borrowed money itself is at risk). I have no idea on the scale here, but it doesn’t seem that significant.
Do the terms of service allow Robinhood to just arbitrarily restrict trading on certain equities? Do the companies involved have a suit because Robinhood is directly affecting their market cap?
What keeps a brokerage, or all brokerages, just deciding they don’t like a company and we’re going ot stop trading it, sorry?
I think its more of a contract dispute. If they were totally silent on the restrictions in their agreement with investors then its all about reasonable expectations etc. If their contract fine print said they could restrict the securities on their platform at their discretion and with no notice then the investors will have to vote with their feet I think.
Well, I think if the firm doesn’t trade in a group of equities it makes perfect sense, but to just decide to limit specific equities that they trade in seems a bit fucked up.
That’s a little different. Trading on exchanges vs OTC is fundamentally different, its perfectly reasonable that a broker would do one but not both. Demanding all brokers do both would be like demanding all Italian restaurants also serve sushi.
