Posted on 01/29/2021 9:24:14 AM PST by JV3MRC
My point is that free markets will expose this fraud. Regulated markets codify this fraud.
I’m not sure either. Just putting it out there for everyone’s perusal. ;)
Especially, when we learn that they had to secure a one billion dollar line of credit overnight to keep the lights on so to speak.
Firms can calculate POTENTIAL RISK and if that POTENTIAL RISK is too high, take protective measures. They are under SEC regulations to do that.
If you have multiple open futures positions that are all highly correlated, even though all are doing well at the moment, a firm can close some of them, if total firm risk is too high due to too many clients having the same exposure. Like an insurance company insuring only homes on the ocean front in southern Florida. One hurricane and all the policies go bad at once, not survivable. Regulators don't like that.
No doubt they can stop trading but that does not cover selling a clients position without their express consent ( especially to cover some one else's short). If any of the shorts who benefitted have any relationship with Robinhood or its parent I would say they are in deep trouble.
You can’t arbitrarily write off what the SEC is saying now as “kabuki noise” just because it didn’t fit your premise. They were very clear in how shady the brokerages cutting of legal trading on select stocks was. It’d be different if it was just one brokerage firm doing this. But multiple firms did the exact same thing to the exact same stocks, and the effect caused GameStop’s stock to crash artificially. That’s the issue: is this stock manipulation or not.
And your point is moot anyway because Robinhood just eased its restrictions on trading those stocks, which means one of two things: 1. Their concerns about too much risk was a bunch of hot air. Or 2. The legal investigations into their actions spooked them enough to reverse course.
If they were as confident that SEC regs protected them, they wouldn’t have reversed course in just a day. Their easing just caused GameStop stock to more than double today so it’d be bonkers for them to choose to ease restrictions and expose themselves to more risk.
Quite unsurprising. OTOH, there are indications they are liquidating people's positions without permission. If those stocks are not bought on margin, I suspect THAT would breach contract.
I notice no mention of that.
Wrong. These weasel words are not very clear as you suggest.
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” the SEC said.
That means they could be going after the reddit ringleaders who manipulated the stock higher, leading many noobs to their slaughter. Buying GME at $450 or $500 and having them lose 25 or 50% in one day.
“The Commission is working closely with our regulatory partners, both across the government and at FINRA and other self-regulatory organizations, including the stock exchanges, to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing.”
That could mean they are enforcing the T+3 rules that brokerages should have enforced on the hedge funds to actually have the borrowed shares in that time frame.
If they were as confident that SEC regs protected them, they wouldn’t have reversed course in just a day.
Not exactly. If many clients sold the stock, their risk would be less. Plus they could have reversed to not tick off and lose clients, half of which were in GME.
They were willing to bring down the nation, scrap election laws to dump Trump—What will they stop at? Zip.
Paraphrase WIll Rogers: “Find a good stock. If it goes up sell it. If it doesn’t go up, don’t buy it.”
1. “that means they could be going after the Reddit ringleaders who manipulated the stock higher.” Nope. See below:
Now you’re using Wall Street’s “kabuki” language. If the Redditors were responsible for having “manipulated” the market just because the short-sellers were wrong, then so is every bigwig who bets heavily in a stock then goes on CNBC to brag about how everyone should also buy into it. It’s a blatant double standard. Charles Payne was even telling his subscribers to buy GME stock a while ago before the surge. Is he guilty of “manipulation”?
The primary reason why the stock value crashed and people lost money was precisely because brokerages stopped trading in that stock. If you’re only permitted to hold and sell stock, as Robinhood forced on its clients, the value of the stock inevitably dips. It wasn’t a natural crash, it was manufactured. Hence why there are class-action lawsuits being brought against these brokerages.
2. A lot of people did not sell their stock. In fact, r/wallstreetbets was telling people to hold because the short-sellers were still losing money. If HALF of Robinhood’s clientele was in GME, it is ludicrous to reverse course after just a single day of trading if mitigating “risk” was their overarching goal. Especially now that their easing led to another spike in GME and individual investors are buying up that stock again. The markets are dive-bombing now because GME is spiking again.
Here’s Payne telling Cavuto that he had told his subscribers to buy GME stock.
https://twitter.com/columbiabugle/status/1354530757520179200?s=21
Surprised he hasn’t been cancelled by twitter or faux yet.
You simply have NO CLUE on this subject. (Don't feel bad, 98% commenting on this don't either) I have said over and over their actions were related to REGULATORY REASONS. Read some of the details for yourself.
Facing an onslaught of demands on its cash amid a stock market frenzy, Robinhood, the online trading app, said on Thursday that it was raising an infusion of more than $1 billion from its existing investors.
Robinhood, one of the largest online brokerages, has grappled with an extraordinarily high volume of trading this week as individual investors have piled into stocks like GameStop. That activity has put a strain on Robinhood, which has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.
On Thursday, Robinhood was forced to stop customers from buying a number of stocks, like GameStop, that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
I think most here don’t understand the clearing process for a trade.
Let say a RobinHood client has an account with $500 in it and they buy and sell one share of GME at $350. The next day they want to do the same. The problem is the funds from the first sale are not settled. It takes 3 days for the clearing house to settle the trade (do the paper work, transfer the sellers funds, do the book keeeping, etc.) That is known as T+3, trade date + 3 days.
Most brokerages will allow another trade if the client has a margin account. The funds needed ($350) for the second share buy comes from $150 of settled funds in the account and $200 from margin. So, yes, margin is involved, the firm is at risk for those borrowed funds.
Now multiple the above by millions of clients with frenzied trading activity in a highly volatile stock. The firm’s total margin debit outstanding skyrockets. Capital ratio requirements get pegged. Selling client stock is one way to un-peg that needle.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.