Robinhood almost imploded during the GameStop meme stock chaos [pdf] | Hacker News Reader

Robinhood almost imploded during the GameStop meme stock chaos [pdf]

financialservices.house.gov

IIRC they said they had to stop trading to go investors for more cash to avoid being leveraged too far.

To me that implied they were at risk.

The leverage was mainly for settlement risks given trades settle T+2. Robinhood AFAIK does not offer leveraging trading. It offers margin trading and it’s possible that they had lend too much.

That’s how I understood it too.

It may not have been an immediate existential threat but to me it is close enough that I would consider it really bad.

What is the difference between margin trading and leveraged trading?

Margin is leverage and is like buying stocks and paying with your credit card.

Per Matt Levine’s Money Stuff at Bloomberg: Broadly speaking, Robinhood has to post more cash with the clearinghouse as its customers trade more stocks. And it has to post more cash as those stocks are more volatile: The more likely it is that a stock will crash or moon, the bigger the credit risk is, so the more money is required.

On the morning of January 28, 2021, Robinhood had approximately $696 million in collateral already on deposit with the NSCC, leaving it with a collateral deficit of approximately $3 billion, which it was required to post to satisfy the NSCC’s clearing fund requirement or risk being in violation of the NSCC’s rules and potentially losing the ability to clear trades for their customers altogether.

Also from the above Money Stuff post: …Robinhood therefore did not expect and had not arranged adequate funding for the additional $2.2 billion Excess Capital Premium charge. On the morning of January 28, 2021, Jim Swartwout texted [Robinhood Chief Operating Officer] Gretchen Howard at 6:29 a.m. EST, writing “Huge liquidity issue.” … “Hypothetically what happens if a firm can’t meet their morning NSCC margin settlement,” an operations manager asked their former boss that morning in a text message. Nothing good! … As Robinhood employees worked through Wednesday, January 27, 2021, to code position limits for meme stocks, they struggled with how to frame the trading restrictions to the public and seemed to want to avoid giving their own clients the real reasons for imposing restrictions. A product manager at Robinhood Financial asked, “Do we have a customer facing rational we can provide? In response, a manager in Robinhood’s brokerage responded, “The real reason is firm risk and us needing to control the velocity of trading. …But we shouldn’t expose that.”

any excuse is good to legislate...

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