For pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543.

As for this thread, it's got hundreds of comments. If you want to see them all you'll need to click through the More links at the bottom, or like this:

https://news.ycombinator.com/item?id=25945447&p=2

https://news.ycombinator.com/item?id=25945447&p=3

This. If your business is to provide a trading platform, you can't forbid your clients of doing the business they want, with their money. You step in the middle of the process, you're liable for your interference.

Unfortunately, RH most likely made the decision already taking into account the potential costs of making it (including lawsuits and fines by regulators). Their alternative was probably “biting the hand that feeds them”, hence more likely an existential risk to them.

Being cynic about it, nothing of consequence will come out of this. RH will just pay up and continue business as usual. WallStreet will have successfully crushed the little guys, ironically, doing the same they are complaining about, market manipulation. And in the future people will think twice before attempting something like this again.

I dunno, if wall street had let the bubble burst, and WSB gets scared off with losses, this all could have gone down as "stupid emotional plebs and their tulips". But now that there is definitely lawsuit material, the bigger questions are now firmly part of the narrative and will continue to unfold in the media probably long past the extent of the bubble.

They probably should have let it proceed.

I won’t speculate on the legal matter, but it sounds like a good witch hunt!

Really, a few rich targets may likely suffer (...or not, when it is so likely deserved).

I’m concerned that many Elanors, who’s teachers’ pension fund & retirement plans, were potentially compromised here.

I don’t think pensions belong in hedge funds is the bottom line.

(Combining unaccredited investor portfolios might look something like combining subprime loans, but...)

Good point about keeping the game alive. I can't blame RH for making whatever call is in its best interest to survive. Whatever the outcome is here I hope it's transparent.

For RH to survive? They robbed us blindly this week. They created a buying dip on the backs on panic selling & people lost fortunes. This company is done for.

>RH most likely made the decision already taking into account the potential costs of making it (including lawsuits and fines by regulators).

Yep. It's very possible that RH just knowingly violated whatever rules/regulations in full expectation that this would still be in their long-run best interest, particularly if they were financially exposed in whatever ways on the shorts that were generating losses. We'll see how this works out for them - they'll take a reputational hit but honestly most people do not have an incentive to leave the platform other than smoldering moral outrage or because they think that GME-like opportunities will continue to present themselves in the future (unlikely imo.)

I’m not sure it’s that simple. They pissed off their most loyal and active customers. I doubt they’ll be back. What to say RH will not do this again in the future?

They picked their company name evoking a certain moral ethos, and the first time their customers consciously acted on that ethos, they pulled the plug.

Whether you agree with that ethos or not, I think we can at least agree that RH lacks the courage of its convictions.

I think it's more accurate to call the name manipulative marketing and what we're seeing is just a company out to make money and save its ass.

Much like Facebook, RH’s users are not its customers. RH’s actual customers are no doubt thrilled with what the company has done.

And, much like Facebook, if you fail to deliver the product (customer data or customer trades) to your actual customer, you're still done. Their customers are surely thrilled by this Harakiri-maneuver.

You mean their investors?

Well, what are people going to do about it?

Look at Facebook and Google, they keep abusing their users, but without a good alternative, there’s very little to do about it.

Edit: eloquently put by a sibling comment, the issue isn’t having an alternative today, but what would happen when those other alternatives are faced with the same conflict of interest as RH is facing, and the answer is that they would probably react the same way, here’s the link: https://news.ycombinator.com/item?id=25947300

Thread on alternatives to Robinhood. https://news.ycombinator.com/item?id=25946366

There numerous retail equity brokers that now offer free trades, mobile apps, and every other feature provided by RobinHood. Unlike Facebook, there is no network effect and unlike Google vs other search engines, different brokers are largely fungible.

There's alternatives to Robinhood though. Robinhood doesn't have the same social network effect as Facebook.

There are a lot of brokers though

This suffers from the illusion that there always is some "choice" or power average people have if a big entity pushes them around in the market.

>doubt they'll be back

Going where instead? Perhaps going to nowhere and not investing anymore, but if that's the alternative RH won't lose much on the margins vs if the "free market" wasn't really just a meme.

We live in a financial oligarchy. If we didn't, this blatant corruption with no recourse wouldn't be happening.

> Going where instead?

To another brokerage? This question doesn't make sense. RH isn't the only brokerage around, and there is a mass migration of people into other brokerages. Their app is currently at 1.0 stars.

If other brokers had the mass of users attempting this same trade, it would have been halted there as well. I guess time will tell.. we can't run the experiment over again.

But the fact RH would simply throw its customers away to appease hedge funds tells you something about who's in charge.

To be clear I'm not saying people won't "want" to go somewhere else that let's them trade how they want to trade (though the low friction and UX on RH itself needs to be re-implemented to equate a like for like substitution), and I agree they should and RH deserves to get ruined by users leaving en masse... I'm saying they won't be allowed to do so if another instance of this same dynamic occurs. Additionally, that there are calls for censorship of wsb, the future co-ordination on social media is also in question

All the pretty UX in the world doesn't mean a thing if there's a pretty message in the app saying that you are not allowed to do the thing you want to do.

I'm not sure. Plenty of brokers are still allowing trades. I can buy and sell on Vanguard in my brokerage account right now. If there's an issue with my trade I can call them, they show their phone number on the confirmation page.

They have some warnings amounting to "this thing is crazy, we'll do our best", but they haven't stopped me from trading. Other brokers are the same.

I think Robinhood cost themselves their business today. Anytime someone says "what broker should I use" the first answer is going to be "not Robinhood, they screwed everyone over" regardless of how true that statement is. I think the industry is about to come under fire too. Heads are going to roll on this one. Action across the board is widely supported by both sides of government. If it is even close to as bad as it looks, Wall Street firms just cost themselves much more than their short positions.

Schwab has a note that they're limiting volumme on specific stocks today. I agree with the point that any of the major brokers would have done the same, but I think that's more an indictment of all of these organizations than a defense of RH.

I'm just not sure about that until I see the volume and see that as a reason for them to not let me buy a security. They can have their systems go down... I mean obviously that's not ideal but that's something that could happen due to volume - but Robinhood didn't go down. Vanguard didn't go down. I can still buy via Vanguard right this second - what does the volume have to do with it?

There are plenty of brokers which are being migrated to right now that are not stoppping trades. European brokers not at all, and in the US Fidelity and Vanguard are still accepting trades (and handling the massive sign-up influx).

Furthermore, the fact that EU brokerages are not stopping trades is something to be considered, no?

They won’t cuz they r going bankrupt. Pull funds & watch the rest.

It completely defies the vision and purpose of their company. They should at least change it to Robbing Hood

robbingood

The people behind RH may come back, but the brand seems to be burned at this point. We're not talking about a non-tangible issue here like Facebook abusing their users' privacy. Customers see their raw money being lost by this service.

The GME move is costing BILLIONS to hedge funds, at that scale I’m sure the costs of a million dollar fine is taken into account.

Perhaps that's the way a broker should be, but what Robinhood, TD and other brokers did is 100% legal and has been done thousands of times in the past. There's absolutely nothing new or illegal about brokers using their discretion to restrict trading of any stock or asset at any time for any reason.

With the risky bets Robinhood encourages, this is an interesting time to get a conscious. At lest the WSB crowd sort of knows what they're doing--it's not like the guy who committed suicide.

Spot on. When retail investors were losing their shirts, that was supposedly OK, but now that hedge funds are losing money suddenly there is so much "concern" about retail investors who have made a killing of a profit on the market.

I don't think the WSB crowd has a clue what they are doing. They practically turned GME into a ponzi scheme, encouraging more and more people to pump up the price by buying it.

It was funny when it was just hedge funds losing millions of dollars because they shorted it, but eventually all the WSB people buying the stock are going to be stuck with something worthless once it inevitably comes back down to Earth.

Trading on GME probably should have suspended a while ago. Now we're stuck in a situation where RH has blocked purchases, and people are going to blame them when the stock tanks and they lose their money rather than themselves for buying ridiculously overpriced stock to begin with.

"It's fine as long as they do it legally"

Why is this the pertinent question? Even if it wasn't legal, they would just re-interpret the rules in their own favor.

Additionally, this is presented as if any of us had any say whatsoever in the writing of these laws or their enforcement or non-enforcement.

It's a distinction without a difference. It implies that "if we don't like it we should change the laws". But none of us wrote the laws in the first place, and certainly if we had the power to change the laws we never would have written them this way. If we had the power to change the laws we would change them. So it's an irrelevant point.

The entire point of the situation is "these are the laws" either officially, or unofficially but in practice.

But they didn't restrict the trading of stock. They restricted the buying of stock. People were still able to sell. Blocking only one side of the transactions is blatant market manipulation.

Correct me if I'm wrong, but I believe they disallowed opening of new positions. I.e. if you are currently long, you can sell to close your position or if you are short, you can buy to close position, but you are not allowed to open new longs or new shorts.

But something like 99.9% (guesstimate) of the RH users happen to have long positions opened. So they're allowing something to the tune 99.9% of longs to close by selling, and 0.1% of shorts to close by buying (I take it the big shorters like Melvin Capital aren't shorting on RH).

This is so close to "allowing sells but not buys" that it is blatant market manipulation.

I think it all goes to show that manipulation is a fact of life, and especially of markets. There's 0 doubt that both sides are trying to manipulate to make money from the other. Maybe some folks on WSB believe GME is fairly valued at $80 or $100, but no one with half a brain truly thinks that it's worth $400 or $4200.69 or whatever price they want. I think it'll fall right back down to $20 once this sorts itself out eventually, and I think most of the WSB crowd thinks that too. The only reason people are buying at those prices is to try to force a short squeeze, to effectively steal money from the hedge funds by forcing them to buy at irrational prices as they get margin called.

Now the hedge funds are of course trying to prevent this by calling favors from the brokers and putting out fake news that they've already closed out. Both sides are using manipulation and displaying the worst parts of our markets, our capitalism and even our character for the whole world to see.

At the end of the day, humans are greedy beings. It's totally natural, and we need to accept that. But as we accept it, we need to figure out ways to regulate that greed so that it is a force for good overall. Capitalism is based on greed, but that doesn't mean it's not the best economic system. On the whole, a group of entirely self-interested individuals can still work together in a sense to grow our economy, build new technology and make the world a better place.

> The only reason people are buying at those prices is to try to force a short squeeze, to effectively steal money from the hedge funds by forcing them to buy at irrational prices as they get margin called.

Go ahead and explain how that is stealing?

So we should roll over and take it?

Each trade is two way right? Who is buying the retail orders being forced to sell? Does being able to sell (to those already short, who can close their position) not seem like blatant manipulation to help those already short?

Or if only retail is unable to open new positions, why are institutional investors allowed to open new positions and profit from the moves while retail cannot?

Sure, but paraphrasing Rick and Morty, that sounds like blocking only buying with extra steps.

Clearly this arrangement only benefits short sellers.

So what?

That is unfair? If my short position blows up, I pay. Nobody halts buying because I will have to liquidate everything.

Apparently they forced the sale of some peoples' shares.

https://twitter.com/555Sunny/status/1354854993946406917?s=20

TD's restrictions were on margins & shorts, which both put the brokerage itself at risk. They did not restrict general or options trading.

That would be right if we were talking about a trading platform, but what we are actually talking about is a brokerage. A brokerage places orders on trading platforms on behalf of its customers and brokerages can make various rules about the orders they will or will not place. For example, Robinhood has restricted trading of box spreads for quite a while following an incident of attempted fraud on their platform (which was partially their fault to begin with). Brokerages also have leeway to stop potential crimes they observe their customers committing, which is what happened here.

For what it's worth, Robinhood was not the only brokerage that is restricting trading GME. TD Ameritrade, Interactive Brokers, and WeBull also have restrictions in place right now.

At a minimum they should've waited for the market to close before implementing the restriction.

The timing of it makes it unethical.

The thing is ... If you don't step in, you could be liable. Let's not pretend that US financial regulation is fairly, evenly, or even logically applied.

I could see the case if trading for the stock was halted, they'd be liable for the inaction of continuing to allow trades on the platform.

But this is straight-up market manipulation. There's no justifiable reason to halt trading on GME except as a means of cooling the market long enough for Important People to exit their bleeding positions.

There's a big ass disclaimer that you sign saying that markets fluctuate and that Robinhood isn't liable for losses of capital.

It’s not that unusual for exchanges to call a halt on certain instruments when they’re overheated, fyi.

The exchange hasn't done anything, though.

It's only certain retail brokers, and, mystifyingly, mostly the ones who have hedge funds with significant ownership interests.

Yeah, that’s clearly problematic. I’m no fan of WSB, but it sure as hell looks like Robinhood has done something very bad here.

But the general case of “the market should never interfere with trading” isn’t true, but typically we only allow that at the exchange level.

No, it's not unusual. And, in fact, the exchanges HAVE used brief halts in trading to curb volatility in GameStop stock. But those were done in accordance with standard policies that simply reference a certain amount of change within a certain timeframe.

What Robinhood has done is apparently to ALLOW trading, but only selling, not buying. At a time when a close partner of theirs is at significant risk if the stock price goes up.

AIUI Robinhood has halted buying shares and options, but they haven't halted selling.

If it was purely a halt on all trading I could see the logic, but only preventing people from buying seems fishy to me.

(I'm not involved one way or the other; I don't trade shares at all)

If they halted selling you know as well as I do that there would have been an immediate "Robinhood is holding my money hostage! They didn't let me sell and the price dropped, so they are responsible for my losses" lawsuit.

Which, lets be honest, would have more merit than a "I missed out potential gains" lawsuit.

Selling is important because it lets people close out their positions as they need to. If Robinhood halted all trading they would have a huge mess à la the complete shutdown back in March.

Buying exposes them to additional risk in the form of potential future lawsuits.

Actually they halted the opening of new positions. If you have a short position, you can still buy to close.

That sounds like a stretch.

You think they are legitimately scared of being successfully sued for "tricking people" into buying through gameification? That looks like CYA-BS from here. If that were a legitimate concern, why wasn't the interface de-gameified long ago?

Robinhood have themselves to blame. They made it dead-easy to trade on margin and do irresponsible naked option plays all these years. And they benefited from that massively in terms of revenue from Citadel (order flow) and raising their own valuation. All of a sudden they care about investor risk?

From the comment:

> If a retail customer loses money and makes a FINRA complaint that Robinhood induced them to buy through its gameified interface, it is liable

This seems like an attempt to pass the buck to FINRA, and I'm fairly skeptical, but open to being convinced. Have there been FINRA complaints that resulted in substantive enforcement actions centered on a broker's gamified user interface?

That is a real stretch. Plenty of people have lost fortunes on /r/wsb using robinhood without anything of note happening.

Any lawsuit that said "you let me freely trade a stock and I lost money" would be laughed out of court.

My understanding is that brokerages are generally not liable for what happens on their platform so long as they ensure trades remain legal (eg margin requirements) and they don't make false promises and keep appropriate disclaimers.

On the other hand, manipulating the market seems like a good way to lose a business.

Liable for what exactly in this instance?

Liable to get on the SEC, and industry's bad side.

Regulators are (intentionally) designed to be able to exert pressure with a lot of discretion. The financial industry is having a ferocious rage fit. The NASDAQ CEO even went on air calling for immediate SEC regulation... the irony didn't even seem lost to him.

Getting on the industry and SEC's bad side is the liability, and that kind of pressure is a big part of hw the SEC actually "regulates." It isn't strictly through rules.

Customers use a trading platform for access to buy and sell on stock markets. If one day you prevent me from doing that but don’t tell me before I sign up when you would restrict my ability to interface with the market it seems like a interference.

Platforms are there to enable interface with market, not decide what I can and cannot buy from that markets.

I think the parent comment is suggesting that the very powerful people in hedge funds could use their power to create severe consequences.

Some folks on WSB may know what they're doing, but many folks are joining Robinhood and buying GME and AMC due to the hype and that they heard they can make a quick buck. When GME eventually crashes, many of them will lose a fair bit of money and blame Robinhood for the poor experience.

I think that both things can be true: people are going to get screwed, and fiddling with the rules in the middle of the game is a really bad look.

I'm not arguing either of those (and wholeheartedly agree with you). I'm simply stating a potential concern/justification that Robinhood may have or use.

I think this is a reasonable attempt at "what RH did was right", although I'd certainly be happier if the timing and coordinating were brought to light:

https://www.bloomberg.com/opinion/articles/2021-01-28/robinh...

This is not a concern specific to gme

If Citizens United says money is speech, the financial system effectively has no guard rails

Except when it does for the institutions

You have been reading too many memes. Citizens United does not say money is speech.

Citizens United says specifically that when a bunch of people take their money and get together and start a new corporation (Citizens United) (a not-for-profit corporation in this case, though not a charity) and the corporation proceeds to engage in political speech (by filming a movie named Hillary: The Movie)...

then the corporation, as an entity, is considered to have the rights like the right to free speech, because it is owned by people who have rights, and this is a way for those people to exercise those rights together. Therefore this political speech is protected by the First Amendment, and restrictions on it are evaluated on the standard of strict scrutiny, and the FEC cannot halt this distribution just because the corporation was using money to make it happen.

(You will notice that people are not allowed to band together and exercise the right to vote, and thus corporations don't get to vote.)

The financial system has _many_ guard rails including licensure (see the FINRA exams), regulations and regulatory bodies, and orders to halt or limit trades and positions on volatile securities.

This concern is relevant to GME, BB, AMC, etc. because folks are joining Robinhood, Webull, and similar apps in record numbers in a rush to jump in on these hyped-up opportunity.

And what if their decisions cause it to crash?

Right now the retail investors are winning. But imagine if they lost tons of money instead. You might have regulators yelling that Robinhood is not doing enough to inform and protect their customers from self harm. Or even that they were encouraging risky behavior.

Aren't there circuit breakers that prevent individual stocks from falling that fast?

Aren't we complaining about a kind of circuit breaker here?

Circuit breakers have clearly defined limits with known actions. This doesn't seem like that.

The SEC or the exchange (ie: Nasdaq) should be the one to step in. They are the ones concerned.

Yeah, but all they can do is halt trading for everyone, that's not what Citadel wants.

Citadel wants to stop retail investors from buying so they can both buy and sell to themselves and drive the price down and scare retail investors into selling.

> you could be liable

What is a brokerage liable for by doing their job?

They were screwed if they did and screwed if they didn't.

If they didn't do anything, the precedent of courts and regulators giving retail investors wins because someone's gameified UI induced them to trade would leave them with untold liability. In this branch of reality, they're going to get sued--and deservedly.

Robinhood could put a margin freeze on trading these stocks on margin or borrowing against shares of GME. It would protect them and be fair to retail investors.

This is what I don't get. Why do they care if an investor is buying GME shares with their own money? They could easily disable margin trading. I can't point to anything other than blatant manipulation.

If we assume for a moment that Robinhood is acting in good faith (Seems like a stretch but work with me here).

It's possible they are doing this to protect investors. It's pretty clear GME is going to crash at some point in the near future. Having thousands of investors on their platform go broke at once is just bad for everyone (who isn't short). By blocking these trades, RH is protecting investors from potential loss.

In a way, it's almost like preventing someone from investing in a Ponzi scheme. While it might piss you off, it will save you in the long run.

Of course... that's assuming RH is acting in good faith.

I see what you’re saying. But I said in another comment that Robinhood has made it super easy over the years to do all kinds of irresponsible trading and have benefited from it. Today seems like a convenient time for them to be concerned about investor risks. This and their involvement with Citadel makes it hard for me to give them the benefit of doubt.

I guess I wasn't clear... I don't necessarily think RH is acting in good faith. I was just suggesting what I feel is the only possible good faith explanation. Not that I believe that is the case.

No, I get that it was an assumption. I was just saying how even if I assume they were acting in good faith, it doesn’t make sense to me.

Better late than never?

I can understand complaining about getting thrown out of a casino for winning too much. I can't understand complaining about getting thrown out for losing too much. The people "investing" in these companies are totally clueless and the majority of them are going to lose all their money. Cutting them off is clearly in their best interest.

Whether or not that kind of paternalism is acceptable is another matter.

So just disable the margin trading instead of blocking all Buys?

I think you're confusing options with margin. Most of the major WSB screenshots are options trading and are not on margin. Specifically they are nearly all call options being posted, which pose no risk to the brokerage.

Likely that Citadel sold lots of uncovered calls to RH users.

No you really can't. The right to refuse service gets weird with trading platforms because if you're found to be doing because you're trying to influence the market then you're in hot water.

Can you imagine a trading platform just outright refusing to process your orders because it was better for them?

Very few retail investors trade on margin as it includes the brokerage holding on to significant amounts of your assets which many small retail investors just don't have.

It requires $2000 in the case of Robinhood. Reeeeeaaaaallllyyyy onerous.

A lot of the WSB members only invested for a few shares - less than $100. They were doing it for fun not profit. Requiring $2k is a big ask for this crowd of investment

Then they stand to recover about twenty cents from a lawsuit. Good for them?

Like sama so eloquently put it, "fuck robinhood".

https://twitter.com/sama/status/1354842339336835074

Counterpoint: virtually everyone who would have been buying GME yesterday based on the pump nonsense would have lost all that money. Consumer platforms can likewise be understood to have an obligation to protect their customers from scams, and to the extent they don't they can also be reasonably held liable.

Basically: there's a reason for these trading controls to exist. And I really think people here are getting ahead of their skis. Almost everyone screaming about sticking it to Melvin is, as I see it, a victim of a trading scam.

Melvin seems to have lost a lot of money, sure, but... so have all the WSB folks. Very, very few people are going to come out of this ahead (and realistically some of those are going to end up in jail).

Counterpoint: You are assuming good faith behavior in RH, where I see blatant fraud. It is outright market manipulation that they stop people from buying, but not selling. That they stopped individuals like me, who know the risk and can afford the loss, while allowing their hedge fund buddies to buy the dump and cover shorts.

As for "this would have happened anyway", well that doesn't sound very free market to force the very thing you claim to be trying to stop. RH says "oh no we don't want you to lose money, so we're going to cause a crash on the stock. Feel free to sell".

It's rotten to the core.

Good thing people can still buy on RH, in order to close their short positions, because guess what? They restricted opening of new positions, meaning that if you have no position, you cannot buy or sell. It is common, it is normal, several other brokerages took similar actions, and it is commonly done when it looks like something illegal might be happening.

From what I understand, they are allowing selling shares, just restricting purchasing shares. That is what makes this market manipulation. A market freeze would block all transactions.

They are allowing people to close positions they currently hold, but not open new positions. That is not the same as only allowing people to sell shares, and it is not the same as suspending trading of the security.

> "close positions they currently hold, but not open new positions. That is not the same as only allowing people to sell shares"

Since RH doesn't allow shorting, the only way to close a position is by selling shares. So yes, it is exactly the same as only allowing people to sell shares.

We are working on fundamentally different assumptions. You assume they did this in good faith to "protect new users".

I believe they are committing fraud and stock manipulation.

But yes, if I used your assumption, I would say they should have restricted options for new users, or put extra warnings up.

And to your first sentence, no, you can't just move to a new platform. It takes more than a week to move funds from one brokerage to another.

Yes, I am 100% assuming that Robinhood is acting is "good faith" (the fact that I'm defending Robinhood feels gross to me).

If Robinhood just wanted to make money, they would have let this continue. People like to complain that RH gets payment for order flow, but they just knowingly cut off that order flow.

It feels like Occam's Razor should apply here. Either:

1. Robinhood felt that it's long term prospects were better if it's users weren't able to gamble and most likely lose all of their money, thus being scared away from the stock market forever.

2. There is a secret cobal that Robinhood, who was previous the "bad guy" of the financial world, is now in and tricked it's users into buying a stock that would be worthless just so that Robinhood could shut of trading at the peak, and let their secret hedge-fund buddies make a ton of money.

I'm not inclined to believe the conspiracy theory when there is a more more reasonable option.

The same firm, Citadel, that fills much of RH's orders is the firm that propped up Melvin Capital (the group that shorted GME and needed a bailout).

Option 3: The cabal is there, it isn't secret, and they were on the hook to lose so much money that it was cheaper to essentially sacrifice the RH brand than to let the short get fucked to infinity.

Edit: They have stated on a blog post that this was a risk management move on their part - not strictly in the interest of the customer.

The market is broken.

> I believe they are committing fraud and stock manipulation.

The stock is already manipulated, though. No one racing to buy GME is doing so because a genuine desire to receive dividends, exercise voting power over corporate governance, etc... They're doing it because they read on wallstreetbets that a magical "short call" was coming tomorrow which would spike the stock.

That's a SCAM. It's not going to happen that way. The owners of all those early shorts have already settled their positions (and, yes, lost a lot of money in the process) and all you're seeing now is a tulip-style pump and dump.

You got scammed. You're not a hero. Robinhood might well not be acting in your best interests but they almost certainly saved you money.

You are factually incorrect.

The users on WSB used publicly available data to see that the shorting was occurring. They did what "the pros" constantly do, which is pool resources and make moves collectively. That is not "manipulation" in the legal form of the word. Not like shutting down trading, in one direction only, for retail only. Since it is individual users on a public forum winning, instead of the guild of hedge fund bros, the power player (Citadel) is forcing the shutdown.

Whether or not pumped up stocks are wise is irrelevant. The fact that something that happens constantly gets axed because the wrong people are winning is the issue.

> Basically: there's a reason for these trading controls to exist.

There is a reason for trading controls by a neutral third party. Trading controls created and manipulated by a stakeholder is market manipulation and illegal.

> virtually everyone who would have been buying GME yesterday based on the pump nonsense would have lost all that money

That's not true. Today the stock went higher than at any point yesterday.

It's already below its open.

Edit: multiple responses seizing on what can only be called a conspiracy theory at this point that some how absent Robinhood's tiny trade volume this stock would somehow still be going up from a 500% increase.

Guys, YES, the system is kinda rigged. What happened here is that you all GOT SCAMMED. There is no magic short call coming tomorrow. The stock was pumped (starting originally with a short squeeze, but of course now it's just a regular bubble), and you were fooled into trying to buy it high. You are the victims here, not the heroes.

They’ll probably use that argument to justify their action. “See we saved you from yourself, look how low it got”. But who knows what would have happened if the trades weren’t stopped. The system is rigged.

Couldn't have anything to do with RH only allowing you to sell the stock, could it?

Strange how only being allowed to sell and not buy may drive a price down.

Yes, but it was higher.

That's true. Most people involved are driven by profit, not by screwing up hedge funds. Trading controls are important but it's problematic that Robinhood has this kind of power. That's usually something that exchanges control.

> Legally speaking, Robinhood is a private entity with no obligations to provide users the ability to trade.

This is mostly false. trading platforms are regulated by a bunch of orgs like the SEC, they absolutely cannot do whatever they want, there are heavy regulations on these activities or it would be easy for a broker to scam their clients out of their money with backroom deals with this or that third party and create conflict of interests.

Those regulations still allow brokers some freedom in how they run their business, and even require brokers to take actions like this (according to some interpretations). AFAIK, there isn't an SEC regulation requiring all brokers to provide services for every stock. In fact, brokers have limited the buying and selling of stocks in the past, so there is precedent here.

The SEC is also extremely strict about market manipulation, and especially when there's a conflict of interest. RH uses Citadel which had billions of dollars invested into Melvin. RH is saving its partner billions of dollars with this action to the detriment of its actual users.

No they don't. All trading platforms are bound by SEC and federal regulations. The terms "broker" and"market maker" aren't slang words. There are strict requirements for platforms who do business under these financial titles.

Nah. FINRA and the SEC eat this kind of argument for lunch. It's Robinhood's platform, but they have to follow the law just like anyone else.

"Fair, orderly, and efficient markets" doesn't mean that you take away someone's seat at the table just because he's winning. If it were Pershing Square driving the long side instead of r/WallStreetBets, there's no chance in hell that Goldman (Ackman's PB if I'm not mistaken) would block opening trades.

> Legally speaking

Do you actually know the rules? Brokers are highly-regulated, and their job is to give a fair trading platform.

> Do you actually know the rules?

Brokers have been doing this for decades; it's clearly within the bounds of what they are allowed to do [0]. Maybe this lawsuit can prove that they are conspiring with hedge funds to manipulate the market (which would be illegal), but just this act alone is not illegal.

[0] https://www.cnet.com/personal-finance/robinhood-app-td-ameri...

Short squeezes happen all the time and RH does absolutely nothing about it. The only time they stepped in was when their partner (Citadel) had an investment in a firm that was losing billions of dollars. I think the burden is on them to prove this wasn't manipulation because it's otherwise so blatant.

Except that it is clearly market manipulation.

I believe there will be a big journalist investigation about how some pretty influential investors made Robinhood management do what they did.

Because someone was loosing billions because of it.

Citadel, who is on the losing side of the short GME trade, is who Robinhood sells order flow to. Make of that what you will.

https://finance.yahoo.com/news/citadel-point72-back-melvin-2... (Citadel, Point72 Back Melvin With $2.75 Billion After Losses)

https://www.cnbc.com/2020/08/13/how-robinhood-makes-money-on...

Oof. It looks like a duck, and it is starting to sound like a duck.

I wonder if it's a duck?

I think it’s the same duck who told me it was wabbit season

Quack.

Citadel Securities (the market maker that buys and executes Robinhood's order flow) and Citadel (the investment group) are very different companies, and they have a ton of red tape in place to prevent risk of collusion between the two.

Considering Citadel Securities makes _significantly_ more money than Citadel would stand to lose with its short positions, the thought of the two colluding to pressure Robinhood seems a bit far fetched to me.

So all it takes for a sound false flag attack conspiracy theory is for some sweeping legislation and some insight into which specific user accounts started this whole ordeal, not too dissimilar from the Capitol invasion and what has followed so far... heck it already seems clear if something isn’t beneficial for the oligarchy the media would bury it very quickly rather than fluffing it up to high heaven!

Where have you read that Citadel has short positions? Buying a portion of Melvin Capital after they suffered big losses is absolutely not the same.

I want to believe this but by and large it seems the media is unsurprisingly siding with the hedge fund side of things. Mainstream media clearly works for the elites.

Always has.

Hard to investigate winks and nods.

I'm pretty sure that Boston Globe's "Spotlight" have heard such opinions many times

Most people claiming that Citadel is pulling the strings seems to be missing the following facts:

- Robinhood was one of many brokerages to implement trading restrictions. e.g. Bank of America/Merrill Edge also shut down buy orders for GME. Citadel does not have the same relationship with these other brokerages. So, to say Robinhood made their decision based on a conflict of interest doesn't hold water.

- Just because Citadel accounts for $xx million of Robinhood revenue, doesn't mean Robinhood stands to lose $xx million if they piss off Citadel. There are plenty of other market makers willing to fulfill Robinhood's orders. Presumably these other market makers would pay slightly less than Citadel, but Robinhood would only stand to lose some small percentage of $xx million.

Putting yourself in Robinhood's shoes, it makes little financial sense to comply with Citadel's demands even if Citadel attempted to coerce them into implementing these trade restrictions.

It's always true that the assumed conversations in smokey rooms are inaccurately reported. So sure, nothing about Citadel's role in this story is actually known.

OTOH, in this case, it's genuinely hard to conceive of an alternative story that isn't a cabal story.

Also, in practical terms... most of the action was on robin hood. If other brokers/originators/banks didn't shut down buys then this entire wallstreetbets craziness would flood in their direction.

Q: Did BoM & Merrill Edge shut down trading on #wallstreetbetmadness stocks entirely, or just the buy side? One of the most damning things here is that robinhood only shut down buys. Seems like blatant market manipulation, but I don't really know the rules.

> Genuinely hard

Actually incredibly easy. $GME isn't worth anywhere near $350 or $20B market cap. These people are in a world of hurt when you have WSB spinning stories and encouraging reckless behavior, where some are throwing their last $20,000 into it, which will eventually disappear to $100 unless they passed the buck to some other chump before it all blows up. RH could genuinely believe that the sooner the GME pump stops, the less damage is done to these extremely naive retail investors, because the future naive bagholders flooding in are prevented from throwing their little savings at it.

Brokerage execution halting or not, this story has an incredibly obvious ending, and it's that some WSB pumpers will profit huge, some hedge funds will lose huge, but the majority of WSB will lose immensely.

OK, I'll play :)

Flesh this story out. Who said this to whom? How did it go from here to a decision to shut down buys (but not sells). This isn't vanguard. It's a daytrading app.

Not to mention that this is near suicidal for robinhood. That's why the Citadel story resonates with people.

The only non-cabal story I can think of (I know I said it was hard, but I thought hard... swear) is that they ran out of cash, or are hedged poorly and trying to trade their way out of a hole. Cabal still seems more likely. I wonder how reliant on Citadel Robinhood is for long tail emergency capital.

If RH thought something was fishy, shouldn't they have completely halted GME trading instead of only disabling buys?

Backlash would be even worse. We've already seen a "class action lawsuit" from WSB to Robinhood back in March when RH couldn't execute buy or sell during a few days and people were furious about their options expiring worthless.

People will claim they had no chance to sell GME for $250, after a few days spikes it back down to $20 or so, and they'll claim Robinhood caused them to lose $50k or whatever.

IDK about that. There's a class action regardless, and (IDK, but seems logical) a market manipulation case as well.

Honestly I don't understand how this is even a question. WTF is supposed to happen to the price of an asset if a big chunk of the owners can only sell.

It seems obvious that the claimed damages for the class action lawsuit would be much larger if sell orders were blocked. Since we know with certainty price will crash, claimed damages would increase by the share value of shareholders at time of restriction.

Sure. Make sense. There is some precedent for determining damages, and that RH are optimizing for it.

How is this not also market manipulation? Lots/most of the trades on target stocks are trading via RH. RH is restricting the access of buyers, but not sellers. How could this decision not affect/suppress prices.

I will not pretend to guess at potential liabilities of one choice or the other, but the one they made does seem to corrupt the market most.

I guess it's cliche to ask this about a financial scandal but... how is this legal? Can a broker really decide that people can either hold or sell, but not buy a stock?

> we know with certainty price will crash

I agree, and yet I seriously doubt even 5% of people saying this have opened a short position, e.g. bought puts.

Well, the far-dated PUT options for GME have almost fully priced in the impending crash at this point. The $320 Jan 2022 PUT price is at $265. I imagine there's still +10% EV at that price, but it's not as compelling as yesterday when it was $240.

1. How likely is it BofA-ML has short positions or investments in funds who do?

2. Isn't Citadel's deal with Robinhood dependent on the flow being "dumb" and not having any broad effect on the market? That's obviously no longer the case, if it ever was. Robinhood is still venture backed, so they're feeling the pressure to show growth in users and profits. Is it possible the market for their "much-less-dumb-than-previously-thought" flow has shrunk substantially?

Also, the retail traders involved and the press surrounding them have (accurately imo) painted this as a populist "sticking it to the elites" movement. What if the so-called elites really do want to disenfranchise and mitigate retail investors impact on the market? BofA, Citadel, and peers might have an interest in maintaining the status quo.

> Robinhood was one of many brokerages to implement trading restrictions. e.g. Bank of America/Merrill Edge also shut down buy orders for GME. Citadel does not have the same relationship with these other brokerages. So, to say Robinhood made their decision based on a conflict of interest doesn't hold water.

My issue is those brokerages said they were closing orders because of Apex clearing. Robinhood basically said that they chose to do it themselves: https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

> Bank of America/Merrill Edge also shut down buy orders for GME.

I heard that Bank of America/Merrill Edge was requiring posting a 100% margin as collateral if wanting to buy GME options. I didn't hear that they shut down buy orders for GME stock.

Absolutely disgusting what Robinhood did.

PR Puff Piece by Robinhood - https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

Keeping people safe from themselves. Stocks where Retail investors are blocked from buying by TD Ameritrade, Robinhood, etc. yet hedge funds and others are free to continue...

Just yesterday Discord bans the WallStreetBets community.

Note: I held a few positions in some of these volatile stocks

> Our mission at Robinhood is to democratize finance for all.

Sounds great!

> Amid significant market volatility, it’s important as ever that we help customers stay informed.

Excellent, thanks for the information.

> We fundamentally believe that everyone should have access to financial markets.

so......

> we are restricting transactions for certain securities to position closing only

:/

Discord has had significant investment from FirstMark Capital, Greenoaks Capital Partners, Index Ventures, IVP, Greylock Partners, Benchmark, Accel, General Catalyst, Ridge Ventures, Spark Capital, and Tencent Holdings. How much you want to bet they also involve with the hedge funds?

I can tell you with some confidence that no partner at any of those funds could care less what some public market long/short outfit thinks and vice versa. Both of these groups of people invest money and that's about where the similarity ends.

Exactly. Trading halted when it was going up. But no problem letting it plummet down to 112 earlier when most could only sell.

There is a fantastic quote in the comments:

>> The ones with laughably ironic names. “Robinhood” working for the rich to spite the poor.

I find this whole drama bizarre. I suspect there is going to be a huge pile of shattered portfolios at the end of this mess.

One can simultaneously find this whole thing pretty popcorn-worthy while hoping not too many people end up seriously screwing up their lives over it.

Indeed. Exactly this.

There is a situation where retail investors don't get utterly screwed but that is a fine edge and on either side of it, thousands of them get screwed.

Yup. And it’ll be a bunch of people that can’t afford to lose the money

I agree. The ultimate irony is that their mission is to democratize finance.

Robinhood's mission is to gamify day trading. Don't let the pretty mission statements obfuscate the truth.

Correct - Robinhood's _marketing_ was "we'll democratize finance".

Robinhood's _purpose_ was to sell order-flow information to the hedge funds. Retail investors were never the customer, always the product.

This is like a mouse complaining about the "irony" of a mousetrap abandoning its mission of cheese-distribution.

Like Facebook and Google's users, Robinhood's clients are the product. They've now learned that truth the hard way.

Seems like a game to me.

> The ultimate irony is that their mission is to demon-atize finance.

The above is what I read at first glance which seemed appropriate.

Hardly the first time in startup history, sadly.

After Melvin Capital loses billions with their naked shorts, Citadel and other hedge funds short selling take over to pulls the strings from underneath some trading apps, including Robinhood.

Will be interesting to see where this lawsuit will go, since it looks like a clear coordinated manipulation of heavily shorted stocks and blocking everyone else from buying them.

Rigged from the beginning. But we'll see what happens with this lawsuit.

I guess someone is only letting the hedge funds trade rather than their own customers. [0]

[0] https://twitter.com/RobinhoodApp/status/712708069369782272

> Melvin Capital loses billions with their naked shorts, Citadel and other hedge funds short selling

Citadel has no short positions to speak of in GameStop. They bailed out Melvin, which means they made money, not Melvin's positions per se. Also, by the time that happened Melvin had already closed out its short [1].

The conspiracy hypothesis might have legs if Citadel's asset management and market making arms colluded. Absent evidence, however, it's a suspicion at best.

Robinhood is between a rock and a hard place of its own making. Market makers stopped making markets in an increasingly-volatile stock. Robinhood, having relied on market makers for execution, likely has sub-par exchange connections, so their execution quality started degrading.

They're also staring down almost-guaranteed lawsuits regardless of what they do. If they badly execute, lawsuit. When the bubble pops, lawsuit for having been induced to trade through their gameified UI. If they block, lawsuit for interfering with trading.

[1] https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

Thank you for being a voice of reason. The speed at which the "wall street cabal is pulling strings and hurting the little guy!" conspiracies erupted was breathtaking.

It's a few short sellers who got wrecked. The rest of the institutional guys are fine and don't care about this except for how much money they're making.

> The rest of the institutional guys are fine

Yes, that must be why trades are restricted, wsb got infested with bots and banned from discord, and the media is in full shit flinging mode against wsb.

>>The rest of the institutional guys are fine and don't care about this except

I have been in frequent touch with my wall street friends. Many are "fine" and the general feeling is that long term this will get sorted out, but many of them took some hits and are watching this very carefully. Many firms had to move out of long positions to get capital, so this had trickle down effects elsewhere in the market.

Things that undermine the credibility of the market and bring congressional oversight hearings into the conversation aren't just being ignored.

Even they agree, it feels like "something is off" but who might be doing bad things is still unclear to everyone, even guys I know with 15+ years in the industry.

But trading wasn't stopped. Avenues for non-professional investors to continue buying shares were cut off. They were still allowed to sell shares as desired.

I don't really have an opinion on whether the GME thing is a pump and dump scam, or a real opportunity to enforce a classic "The market can remain irrational longer than you can remain solvent" lesson to those shorting these stocks.

But I do have a real issue with removing just the "buy" side of the equation. Price is always a function of supply and demand, and I don't understand how anyone could justify halting just buy orders. The obvious impact of artificially reduced demand is that the price will drop.

Further - if this price drop was designed to protect these firms from possible losses (and I don't really care whether that loss was by allowing unvetted shorts by investors who don't have the capital to cover, or whether it was collusion to protect other parties) then I still don't see how you can reasonably come to a conclusion that looks good for these firms here - They're manipulating stock prices to avoid losses.

Short squeezes are illegal according to the SEC. WSB shows many people clearly collaborating to create a short squeeze, example - https://www.reddit.com/r/wallstreetbets/comments/l594yg/gme_....

Robinhood would have legal liability for aiding and abetting an illegal short squeeze had they continued.

Short squeezes are absolutely not illegal - They're a natural property of how the investment vehicle operates when the price of shares spikes.

The illegal part is a scheme to collude and manipulate the availability or price of the stock to intentionally cause a short squeeze. I'm not entirely sure I agree with you that posts like that are "collusion" (Cornell def here is interesting as a refresher - https://www.law.cornell.edu/wex/collusion), but I can certainly concede there's plenty of shades of gray here.

FUD, the ability to buy a stock is not an option that exposes the broker.

Short squeezes are illegal, and Robinhood continuing to allow blatant short squeeze activity could be construed to be aiding and abetting it, giving it huge legal liability. Hence, the shutdown of trading.

>The conspiracy hypothesis might have legs if Citadel's asset management and market making arms colluded. Absent evidence, however, it's a suspicion at best.

Yeah, uh, they do that all the fucking time. It's a Soviet fiction that they keep a firewall between those two businesses.

The thing that confuses me most here is what legal grounds does this proposed suit actually have to stand on? I've not read RH's terms of service, but I'd be surprised if whatever terms it laid out didn't basically have a fuck-you clause in it that would throw out any contract violation suit. Additionally, I'm not sure if there is actually a private cause of action to sue someone for alleged market manipulation (not that I believe the allegations here).

Financial institutions are generally very tightly regulated. A lot of things are set by law, not contract. I have no particular knowledge in this domain, but I am sure we all will learn more about when the law ends and discretion begins by following the news about this lawsuit.

How come they only had trouble executing buy GME orders? Honestly I hope RH is burned to the ground after giving up whoever coerced them into doing this.

> How come they only had trouble executing buy GME orders?

I used to be an options market maker. Different animal same game park.

If I saw a stock doing what GameStop is doing, I'd pull the plug. One, we'd have already made a ton of money on it. More importantly, with this kind of volatility (and correlation), we'd be well outside the parameters of our risk models.

Usually, cash equities don't have this problem. But there is a realistic chance that a desk will fill a bunch of sells, turn around, and within those microseconds watch the market gap down 50%.

It's unlikely. But how unlikely? We don't know. We're too correlated, and too volatile, to predict that. You do something like that, particularly after the amount of press coverage this is getting, you are going to lose your job.

> I hope RH is burned to the ground after giving up whoever coerced them into doing this

Between the gameified UI that encouraged day trading, their reliance on payment for order flow and margin-lending / options trading model, I won't say this was bound to happen. But it was an identifiable risk.

The warning signs were clear when their systems went offline under large volumes. Concerns were dismissed then. I expect this will be forgotten by much of their user base soon enough as well.

Honest question, why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high? The argument for why we allow these organizations to siphon money as a middle man is because they provide an important service and are taking on risk. But if they're allowed to bail when things actually get risky that's a lie and they're just leeching money. You made the analogy that their job is like vacuuming nickels in front of bulldozers in another thread, but if they can just leave when the bulldozers show up what they're actually doing is just vacuuming free nickels that other people dropped.

I know its pretty clear my current personal opinions on this topic lean rather hard in one direction but I am truly open to hearing the counter argument and could be convinced otherwise. Some of your posts here and in other threads have changed my view on other parts of this whole mess already so I'm asking because it seems like you're willing to discuss sanely.

> why should market making organizations be allowed to take the upsides involved in their position but be able to avoid the downsides by just not doing the job they signed up for when they feel the risk is too high?

This is a great question.

Short answer: they shouldn't. When a market maker signs up to make markets on an exchange, they commit–contractually–to providing quotes in good times and bad. Payment for order flow contracts can vary, and I don't know what Robinhood's terms are, but they typically carry a similar requirement.

There are reasonable exceptions. If your systems are having issues with a stock, e.g. the intern entered a dividend wrong into the database, you can declare "self help" and stop quoting for some time. This is occasionally abused. But exchanges are decent at policing it.

In this case, though, yes--a lot of market makers made a ton of money, got scared, shrugged and then put their hands up. (Again, caveated to Robinhood's agreements.) Fortunately for them, the crowd has been distracted by this Ken Griffin called Robinhood to screw over /r/wsb story, so they won't get much more than a slap on the wrist.

I take it then that you think this is nonsense:

https://twitter.com/justinkan/status/1354853920762253315

?

Not necessarily. But it's ambiguous.

If Ken Griffin put in GME shorts before ordering his market making desks to quit in it, yes, that would be criminal.

If a fund manager bought puts a few hours before the market makers put up a white flag, I'd want a thorough investigation to rule out collusion. But by itself, suspicious--nothing more. If a long-short value fund bought puts based on an algorithm keyed in months ago before market makers fled the scene, it's almost certainly innocuous.

And if the options desk was hedging the puts they just sold by selling short while the cash equities desk called it quits on the name, that would be perfectly normal.

I am sorry, can you explain again why MM's would only pull out of selling GME? Because RH only stopped people from buying GME.

> why MM's would only pull out of selling GME? Because RH was still allowing buys.

Market makers typically would pull out of the name, not out of one side.

My guess is Robinhood didn't want people opening new positions--long or short--in the name. Blocking people from selling an asset you sold them raises all sorts of issues. But denying them the ability to enter into a new position through your services is on more-stable ground.

Thanks for the clarification.

>Citadel has no short positions to speak of in GameStop. They bailed out Melvin, which means they made money, not Melvin's positions per se. Also, by the time that happened Melvin had already closed out its short.

You have made these claims dozens of times today without citing sources. Are you spreading insider information, lying, or just incredibly lazy and don't care if people believe you?

Lazy and don't care if people believe me. I'm commenting on HN. I have zero horses in this race beyond entertainment.

Added source for Melvin Capital making public statements on its short position. They could be lying. But then that's securities fraud.

Just going by the numbers, wouldn't we have seen much more volume if they had actually closed out their position?

> wouldn't we have seen much more volume if they had actually closed out their position?

More than what? GameStop was the most traded stock in the country for a few days.

The SEC fine / lawsuits for that lie are very low relative to what they'd lose on those short positions.

> SEC fine / lawsuits for that lie are very low

Intentionally making unambiguously false, material and self-serving public statements like that is well beyond fine and lawsuit territory.

They kept it ambiguous, did they not?

Why would they bother to make such statements early in the AM if they had actually closed out their shorts?

They said before they do not comment on their positions. Why would they do so now if it wasn't a serious situation?

> They kept it ambiguous, did they not?

"We have closed out our position in GME (GameStop)" isn't ambiguous.

> Why would they bother to make such statements early in the AM if they had actually closed out their shorts?

Most likely: Citadel required them to. The bailout was going to be announced. Citadel didn't want informed observers speculating on whether Citadel had just ponied up to an unhedged falling knife.

Otherwise, Melvin is a hedge fund. Its LPs are nervous, and assuring them the worst is over could sow doubt in would-be defectors. This could also be done by way of confidential notice, however, so on its own it isn't enough. The other factor is, perhaps, to get the people prank calling and such off their backs. That was a stated factor for Left at Citron.

I don’t think people really understand how Citadel’s internal structure works. It’s not just one mustache twirling villain, deciding what to do.

The market making unit is in a totally different part of the org chart, with its own PnL lines, than the hedge fund. In fact Citadel Securities is a separate company than Citadel Investments.

But most importantly there’s a legally mandated Chinese firewall between the two. Employees on one side are not allowed to discuss operations with employees on the other. This is enforced to the extent, that an employees access card won’t let them enter the other side of the division.

Citadel makes a shit ton of money as it is. Nobody there is going to risk major jail time with an easy to unravel scheme involving dozens of co-conspirators, just to make a few extra bucks on a tiny short position.

I don't know for sure but I don't think there needs to be a chinese firewall between the two like at banks. Banks investment banking and advisory divsiions have access to insider information by the nature of their work, which is why the chinese firewall exists between them and the sales and trading desk. Citadel is a hedge fund, however that uses only public information (presumptively, as otherwise would be illegal) so i don't think there's a reason why they would need to be firewalled off. Also Citadel does use Citadel Securities for execution.

Additionally, they're both owned (mostly) by Ken, who is know for being a bit "detailed" (to put it nicely) when it comes to his businesses. He almost certainly has live second by second pnl updates for all parts of all of his business, he almost certainly was the one who made the decision to invest 1.4+ bn into Melvin, and he almost certainly knows that retail flow (esp robhinood) is a huge part of citadel securities business.

Honestly I think reddit has some grounds for a case here, but IANAL.

This is weasel crap, and pretending that separation is meaningful is one of the reasons people hate legalese smoke and mirrors. All it takes is someone near the top of the org to send some messages, and you don't have to be in the same room to do it. The financial world pretends this crap works because otherwise they'd be rightfully pilloried for exactly the kind of shit that is happening right now.

Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management - 3 days ago [0]

[0] https://www.wsj.com/articles/citadel-point72-to-invest-2-75-...

With Citadel as a large market maker I would think Robinhood likely has a financial conflict of interest with them with respect to their customers, selling Citadel "dumb flow" (and now, depending on how you look at it, lobotomizing the flow).

It's a different Citadel, from here: https://www.theverge.com/22251427/reddit-gamestop-stock-shor...

At least one Wall Street firm has taken heavy losses — Melvin Capital Management, which was shorting GameStop, among other bets. It’s been bailed out by Citadel, which, confusingly, is not the same thing as Citadel Securities. (Citadel is a hedge fund, not a market maker.)

It's a ""different"" Citadel only in the twisted sort of logic lawyers are hated for. They're operated by the same people and have the same name.

It's the same Citadel, just different legal entities.

I'm pretty sure you're wrong about this and this isn't 'naked shorting'.

I have pretty low confidence in the detailed specifics here, but I saw some discussion on Twitter that naked shorting being legal could have actually prevented the squeeze we're seeing. [0]

The reason for the extra >100% has to do with how the stock lending works (Matt Levine wrote a bit about this recently). [1] Quoted below.

--

"This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding! Here is an explanation of how options market makers (discussed below) are allowed to short without a locate, but I want to offer an even simpler explanation. There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but 190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine."

--

I still think what Robinhood did here is both wrong and a stupidly short-sighted that will damage their brand, but there's so much over confident misinformation about what's happening surrounding this that it makes it harder to understand.

The NYT is no better - another dumb Taylor Lorenz article got less right than most random Twitter threads.

[0]: https://twitter.com/simoj_/status/1354664677364609026

[1]: https://www.bloomberg.com/news/newsletters/2021-01-25/money-...

Obviously it should be illegal to lend the same shares out multiple rounds. If it's not, that's an absurd hole in the regulation.

A owns 90 shares, B owns 10. A lends 90 shares to C who sells them to D. D lends 90 shares to C who sells them to E. E lends 90 shares to C who sells them to F...

C in this hypothetical is borrowing and selling the same shares over and over again to various 3rd parties. Shorting the same shares twice is truly naked short selling.

If there's three people in a room, and only one pair of pants, what would you call it?

There's no problem with shorting multiple times - you simply have to be trusted to pay up the time comes. It's easy to do.

Suppose there is 1 share in existence, A promises to sell it to B and to C if price reaches X. If price gets there, A is on the hook to pay up. So now A has to buy the share if not held, or have it already. A sells out to B, fulfilling the contract to B. Now A needs that share again, so has to offer B a price to buy it, and does so. Now A closes out with C.

It's vastly easier when there's lots of shares, because it's easier to find a seller each time you have to close out multiple contracts.

This is done in pretty much every part of the economy. When you put money in a bank, it can be lent. Now the bank has a debt (to you) and an asset (money owed to them by the lendee) that balance. That lendee can also lend the same money, again incurring a matching debt and asset.

None of this is voodoo back market evil. It's common sense used to allocate resources, has been done for millennia in many forms.

It's funny watching naive traders get upset over it simply because they don't understand how their own markets work. It will be funny and sad watching them learn even more about how markets work in the coming days.

Banks are legally permitted to lend (create) money with less than 100% reserves. That’s the whole intent.

Whereas in public markets, a random hedge fund should not be able to essentially issue new shares / increase the float.

My point is simply a ban on “naked shorting” is obviously useless if you allow chain lending, therefore a ban on naked shorting implies a ban on chain lending.

There is no ban on what was done. You don't understand the SEC regulations on naked short selling, which specifically allow the fund activity on GME.

As you wrote, the rules were created because this activity is the whole intent.

Go carefully read the SEC rules regarding this, specifically the exemptions which are written in law.

As I posted above, there is nothing illegal, immoral, evil, or deceptive about these practices. It's only when people don't understand the rules and most importantly why the rules are what they are that those people get upset.

It's like watching natives throw rocks at the moon to scare it off.

I don't think that Robinhood had any other choice here. Their partner is Citadel, which is basically a "middleman" broker. Citadels main business is this, for every incoming stock purchase, they buy stock at an amount that is just slightly lower, driving up the stock price a tiny bit, and then sell the stock to the buyer, pocketing the difference. They can do this because they have direct access to the stock market and are fully autonated. Robinhoods access to the stock market is also through Citadel. Citadel also bailed out the Melvin Capital hedge fund earlier this week.

I would imagine that Citadel can simply force one of their partners like Robinhood to do anything by threatening to cut them off from the market entirely.

I think their main goal now is to make sure that the lawsuits and fines they will be hit with will cause them to loose less than a short squeeze in this stock would eventually have.

But all of this is just speculation. I don't actually know anything about the stock market, I started reading about it two days ago. I don't want to "conspire" or anything like that, just my theory.

I don't see how Citadel can force them into that when that will be much more clearly market manipulation.

Though at any rate, I am not convinced Citadel had much of a stake at this point - Melvin had supposedly closed its shorts and the current short sellers were very possibly different actors.

Nobody needs to "force" anyone to do anything. Money works great as a motivator.

Well the RH decision may have been more reasonable than I thought (and have to do with clearing house details I didn’t understand) - just communicated terribly: https://marginalrevolution.com/marginalrevolution/2021/01/wh...

For what is worth, people said very similar things during RH's infinite money glitch fiasco and everyone basically forgot about it by now.

I'd guess the truth is dumber here than you think.

It's probably purely a math question -- what's cheaper impending lawsuit (we can settle) or losing our trade?

My theory is that no market makers want to buy the orders Robinhood is selling anymore.

Yeah the whole point of selling your orders is that retail traders are mostly "uninformed" and likely won't move the market. WSB basically showed that's not always the case.