Common Misconceptions about Markets

    DTCC, the clearinghouse for WeBull, RH and other brokerages, recently raised the collateral requirements for GameStop transactions to nearly 100%.

    When RH takes a buy order it goes to it's clearinghouse to exchange it's clients money for shares. The shares are immediately and conveniently transferred to the client, but the funds aren’t transferred for 2 days. There's this gap between the broker and the clearinghouse for these unsettled trades that the clearinghouse will require some cash upfront (margin) for but otherwise accepts exposure for the rest.

    If the stock being bought is extremely volatile, expensive and has a huge amount of recent volume and therefore unsettled trades, the clearinghouse will eventually realize they are floating quite a lot more to the broker than they are comfortable with on the back of a very risky equity. GME fits all these characteristics. It's this point in the GME scenario where DTCC sets margin requirements to 100%. They tell their brokers, "Hey if you want to get GME stock from us, we will not accept your word that this trade will settle in two days. Instead we need the money upfront since we are already way too exposed to this one ticker from you."

    Now, if RH wants to continue filling buy orders for it's clients it needs to come up with ALL the money for each trade. RH does not have nearly enough cash on hand to handle this, hence the recent draw down from of RH's credit lines as they try to get enough liquidity to keep buying shares for their clients. Eventually the brokers just don't have enough cash, throw in the towel and stop accepting buy orders until they can settle more trades or the clearinghouses release the margin requirements for these stocks.

    The concept that RH would fuck over basically their entire user base on purpose to help a minority investor's minority investment in a hedge fund that already closed their fucking short position doesn't stand up to even the smallest amount of scrutiny. It's just a boring case of the market plumping going wild because it's not built to handle pumps of this scale.