> I just don't think it's fair to blame Robinhood for not having the cash on hand to meet the unforeseen increase in deposits required.
I'm asserting that given how volatility and RH's overall situation was going, it wasn't unforseen. RH let itself become a counterparty risk, and therefore the clearinghouse stepping in was far from unforseen.
And since they had to negotiate down their deposit by half, raise money, liquidate client positions, and still halt buying, it's pretty clear that they were in way, way, way too deep.
> It's not obvious to me that Robinhood over-leveraged itself though. If you are seeing some reporting on this that says otherwise, I would love to see it.
They had to negotiate down their deposit from $3B to $1.4B and still had to liquidate client positions to meet that deposit and avoid going into receivership. That's a classic consequence of being over-leveraged.
Since these were deposits, this means that RH literally didn’t have the cash on hand to settle all their customer’s trades in GME alone, and (I presume) counting on sells to happen within the settlement window. That’s the definition of over-leveraged.
> I'm just not sure how you can be so confident that the proportion of margin trading to non-margin trading was high enough that we can attribute most of the problem to the margin trading.
Great point. I'm assuming that it's much higher for RH because of both who they attracted, and because they make it very easy to get a margin account. I'd love to see real numbers though.
> That's exactly my point. If the margin trading was the primary source of problems, it seems like RH would have just limited margin trading instead of limiting all buys (whether on margin or not). Doesn't the fact that they didn't make this distinction suggest that the margin trading wasn't a disproportionate factor?
Once your clearinghouse is demanding a deposit greater than your liquid reserves, limiting margin trading is not enough anymore. Eliminating margin before that would have reduced the outlay in general (as I mentioned previously), and might have also done a lot to reduce market volatility and calm DTC. But they waited long enough that it did not matter.
I'm asserting that given how volatility and RH's overall situation was going, it wasn't unforseen. RH let itself become a counterparty risk, and therefore the clearinghouse stepping in was far from unforseen.
And since they had to negotiate down their deposit by half, raise money, liquidate client positions, and still halt buying, it's pretty clear that they were in way, way, way too deep.
> It's not obvious to me that Robinhood over-leveraged itself though. If you are seeing some reporting on this that says otherwise, I would love to see it.
They had to negotiate down their deposit from $3B to $1.4B and still had to liquidate client positions to meet that deposit and avoid going into receivership. That's a classic consequence of being over-leveraged.
Since these were deposits, this means that RH literally didn’t have the cash on hand to settle all their customer’s trades in GME alone, and (I presume) counting on sells to happen within the settlement window. That’s the definition of over-leveraged.
> I'm just not sure how you can be so confident that the proportion of margin trading to non-margin trading was high enough that we can attribute most of the problem to the margin trading.
Great point. I'm assuming that it's much higher for RH because of both who they attracted, and because they make it very easy to get a margin account. I'd love to see real numbers though.
> That's exactly my point. If the margin trading was the primary source of problems, it seems like RH would have just limited margin trading instead of limiting all buys (whether on margin or not). Doesn't the fact that they didn't make this distinction suggest that the margin trading wasn't a disproportionate factor?
Once your clearinghouse is demanding a deposit greater than your liquid reserves, limiting margin trading is not enough anymore. Eliminating margin before that would have reduced the outlay in general (as I mentioned previously), and might have also done a lot to reduce market volatility and calm DTC. But they waited long enough that it did not matter.