Which proves they weren’t caught short because if they were they would have been worried about their own skin and not able to add risk by bailing out others.
I wonder what kind of terms they got for that bailout...seems like they likely made out like bandits in this situation. Especially as they benefit when Robinhood volume increases as they take a lot of the order flow.
They added risk by buying into the firm that was short and underwater...magically the market shenanigans happened soon after. I'm sure they made out like bandits because they probably exited most of the position Thursday morning when they were tanking the stock. They are free to open their books up and show everyone they weren't, but that will never happen.
Bought some more PINS...assuming Melvin was the ones heavy selling it earlier this week.
A loan is not a position. I am sure that Citadel, being sophisticated market participants, secured adequate collateral rather than putting themselves needlessly in the difficult position of having to rely on potentially illegal actions to manipulate a random small cap stock in order to ensure payback of a loan they made well after the short squeeze became obvious.
Your better argument is they needed Melvin not to blow up because Melvin is long a lot of the same stocks as Citadel. But for that all they needed was for Melvin to cover not for the squeeze to fail.
Wasn't there a corollary saying from Trump way back when...owe the bank a little money its a loan. Owe the bank a shit-ton of money and you become an owner? (Not quite the same but similar concept). Not sure what Melvin would be able to pay Citadel back with if they go underwater on the GME short and had to liquidate all of their holdings to help cover...shorting a stock at $10 that then trades at $350 gets expensive real quick. Add too that Citadel's investment in Robinhood and the fact they were likely not liquid...
Only thing I'm sure of with Wall Street is that rules are like road markings to the banks and hedge funds...they are a nice guide but they won't keep their car in the lane if they need to swerve to miss something.
It’s just basic understanding of leverage and thinking about it from each person’s perspective.
The squeeze was already obvious to everyone on Monday and Melvin was already underwater.
Citadel had no skin in the game why would they risk getting involved at that point in a stock they had no position on unless they got a great deal that wasn’t dependent on Melvin not getting squeezed further?
One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn't risk another day of furious public outcry and massive client departures).
However, just before the close, things got downright surreal when in a blog post the broker - which should probably change its name from Robinhood to Suit - made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!
One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn't risk another day of furious public outcry and massive client departures).
However, just before the close, things got downright surreal when in a blog post the broker - which should probably change its name from Robinhood to Suit - made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!
You are once again misunderstanding the relationships between the different involved players. Its almost like you came up with your conclusion first and then went looking for evidence instead of the reverse.
Citadel didn't participate in any of Robinhood's 19 funding rounds. They are not an investor in Robinhood.
Citadel is a customer of Robinhood. They buy a large chunk of Robinhood's order flow.
This gamestop frenzy caused a liquidity issue for Robinhood because they have to post collateral to cover the time period in which their customer's trades settle (t+two business days) and they can't use customer funds to do so.
This is usually not a problem since a brokerage is able to net out the buys/sells of any given security to calculate the risk and hence the collateral needed.
But reportedly 56% of Robinhood's customers were long GME (and probably a negligible amount short or selling.) Robinhood was forced to post a rapidly increasing amount of collateral with the clearing broker hence the liquidity issue.
It is the opposite of a normal liquidity issue stemming from business deteriorating. Instead it was the result of a massive boom in business.
Citadel also benefited from that boom in business but was not subject to the regulatory requirements that Robinhood was.
One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn't risk another day of furious public outcry and massive client departures).
However, just before the close, things got downright surreal when in a blog post the broker - which should probably change its name from Robinhood to Suit - made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!
You are once again misunderstanding the relationships between the different involved players. Its almost like you came up with your conclusion first and then went looking for evidence instead of the reverse.
Citadel didn't participate in any of Robinhood's 19 funding rounds. They are not an investor in Robinhood.
Citadel is a customer of Robinhood. They buy a large chunk of Robinhood's order flow.
This gamestop frenzy caused a liquidity issue for Robinhood because they have to post collateral to cover the time period in which their customer's trades settle (t+two business days) and they can't use customer funds to do so.
This is usually not a problem since a brokerage is able to net out the buys/sells of any given security to calculate the risk and hence the collateral needed.
But reportedly 56% of Robinhood's customers were long GME (and probably a negligible amount short or selling.) Robinhood was forced to post a rapidly increasing amount of collateral with the clearing broker hence the liquidity issue.
It is the opposite of a normal liquidity issue stemming from business deteriorating. Instead it was the result of a massive boom in business.
Citadel also benefited from that boom in business but was not subject to the regulatory requirements that Robinhood was.
This sounds correct to me.
I'm going to get baked later and read this thread again to see if I still agree.
One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn't risk another day of furious public outcry and massive client departures).
However, just before the close, things got downright surreal when in a blog post the broker - which should probably change its name from Robinhood to Suit - made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!
You are once again misunderstanding the relationships between the different involved players. Its almost like you came up with your conclusion first and then went looking for evidence instead of the reverse.
Citadel didn't participate in any of Robinhood's 19 funding rounds. They are not an investor in Robinhood.
Citadel is a customer of Robinhood. They buy a large chunk of Robinhood's order flow.
This gamestop frenzy caused a liquidity issue for Robinhood because they have to post collateral to cover the time period in which their customer's trades settle (t+two business days) and they can't use customer funds to do so.
This is usually not a problem since a brokerage is able to net out the buys/sells of any given security to calculate the risk and hence the collateral needed.
But reportedly 56% of Robinhood's customers were long GME (and probably a negligible amount short or selling.) Robinhood was forced to post a rapidly increasing amount of collateral with the clearing broker hence the liquidity issue.
It is the opposite of a normal liquidity issue stemming from business deteriorating. Instead it was the result of a massive boom in business.
Citadel also benefited from that boom in business but was not subject to the regulatory requirements that Robinhood was.
This sounds correct to me.
I'm going to get baked later and read this thread again to see if I still agree.
It’s insane to think that Citadel has no skin in the game...one of the FINTWIT blue checks said they were direct investors...I’ll try and go back and look. Either way though, Robinhood has the largest number of transactions of individual investors in the industry and Citadel routes the most trades. Those two are connected at the hip, and now RH is on the brink of insolvency.
You can argue about Melvin, but do you think any of the three would be better off if the market hadn’t been tampered with and GME went to $1,000 like many expected?
Robinhood ceo doesn’t come off so good here. What are the financial obligations he says they’re required to meet that led them to shut down GME trading?
Hey @FremontTroll...question for you. I’m anything but an options guy.
A bunch of wildly out of the money GME call options are now in the money...let’s say as an example 1 $300 call option (100 shares) in the money with GME closing at $350. A bunch of RH investors hold it though time because they probably don’t know what to do, which means they now have to put up funds to buy the shares ($30,000).
They have, what 2 business days to fund it? Who is responsible for the $30,000 between now and then, especially assuming RH doesn’t have the funds?
Now say the next day GME crashes to $50 and RH reddit guy says FU...I’m not paying you $30,000 for 100 shares that are now worth $5,000...try and get your money. Who’s left holding the $30,000 bag on a stock that is now worth a bunch less, especially if RH is already broke.
I’m assuming the Clearinghouse (ie Citadel being the primary one), but I don’t know for sure.
Hey @FremontTroll...question for you. I’m anything but an options guy.
A bunch of wildly out of the money GME call options are now in the money...let’s say as an example 1 $300 call option (100 shares) in the money with GME closing at $350. A bunch of RH investors hold it though time because they probably don’t know what to do, which means they now have to put up funds to buy the shares ($30,000).
They have, what 2 business days to fund it? Who is responsible for the $30,000 between now and then, especially assuming RH doesn’t have the funds?
Now say the next day GME crashes to $50 and RH reddit guy says FU...I’m not paying you $30,000 for 100 shares that are now worth $5,000...try and get your money. Who’s left holding the $30,000 bag on a stock that is now worth a bunch less, especially if RH is already broke.
I’m assuming the Clearinghouse (ie Citadel being the primary one), but I don’t know for sure.
The broker is responsible until settlement that is why they have to post collateral.
But depending on the type of account you have and how much cash/margin you have brokers may take action on your behalf on Friday afternoon to avoid the possibility of the situation you outlined. You have to know the rules of your broker. It is pretty annoying when you sell a call or put that you thought expired only to find out your broker sold it 30 minutes before close.
If you get a margin call the broker may give you a few days to meet it or may sell stocks/exercise options in your account on their own. I guess if there wasn't anything to liquidate they could come after you.
In the meantime if your options exercise your account balance can look pretty strange until it is sorted out Monday morning. That is what caused that kid to commit suicide last year- he thought his Robinhood balance was -$730k but that was just because the put he sold was exercised but the stock wasn't showing up in his account yet. I assume Robinhood would have sold it first thing Monday morning and the balance would have been sorted.
Hopefully they've changed their rules since then I'm not sure.
One interesting situation that I've always wanted to take advantage of but never had the chance is that you can actually exercise your options up until Saturday (or Friday night end of extended hours depending on the broker.) So if your call was OOTM at noon on Friday but news was released after close and it became ITM you can get ahold of your broker to exercise. Sucks for whoever sold you that call.
My question though is if the broker has no collateral (ie where RH is now), their business model doesn’t require it for their clients (ie RH again...average account size is only a couple thousand), and I’m guessing the liquidity of those options dry up because the main people still buying/selling them are all on the same platform facing the same issues.
Somebody holds the bag in the above case...who does that end up being?
My question though is if the broker has no collateral (ie where RH is now), their business model doesn’t require it for their clients (ie RH again...average account size is only a couple thousand), and I’m guessing the liquidity of those options dry up because the main people still buying/selling them are all on the same platform facing the same issues.
Somebody holds the bag in the above case...who does that end up being?
Robinhood is on the hook to the clearinghouse and the customer is on the hook to Robinhood.
My point is if the above is true Citadel is in bed with RH whether they like it or not.
Citadel was very lawyerly in their response...they said they didn’t tell them to shut trading down. My point is they didn’t have too...all they had to do was just show them a model if trading continued how much Robinhood would have to pony up to them for different GME price scenarios knowing Robinhood didn’t have a chance in hell of having that money, and also knowing they were completely effed if they were stuck holding the bag trying to sue thousands of small-time RH account holders to try and recover their money on something that is going back to $10/share in a month if not sooner.
That is a strange way to frame it but the $33bn is industry wide. Robinhood may have the most number of customers by this point but in terms of amount of money traded they are minuscule.
But yes this was the reason they restricted GME not any nefarious pressure from hedge funds. If GME buys reached a certain % of Robinhood orders (which surely happened) they would have had to post extra collateral for every additional GME trade per the formula. And yes, if all their customers lost on the same stock at the same time they would have to cover the loss until settlement.
Watch the interview of the WeBull CEO he explained the situation they were in much more transparently.
The thing is that they are now past the crunch. I really doubt there will be any three day period with more volume and swings in GME than the last three. People are gonna get bored and move on.
Also it’s not like Robinhood is letting it’s noon customers sell naked calls or puts with unlimited risk. The most advanced options level (which honestly anyone can get to) just lets you trade various types of spreads.
My point is if the above is true Citadel is in bed with RH whether they like it or not.
Citadel was very lawyerly in their response...they said they didn’t tell them to shut trading down. My point is they didn’t have too...all they had to do was just show them a model if trading continued how much Robinhood would have to pony up to them for different GME price scenarios knowing Robinhood didn’t have a chance in hell of having that money, and also knowing they were completely effed if they were stuck holding the bag trying to sue thousands of small-time RH account holders to try and recover their money on something that is going back to $10/share in a month if not sooner.
I don’t know what Citadel clearing is I assume it’s Citadel clearing their own trades there are multiple levels. Robinhood has its own clearing too. But when I am talking about the clearinghouse I mean the central clearing house.
The thing to understand is that Citadel is important to Robinhood but Citadel doesn’t give two fucks about Robinhood. Citadel is easily the biggest market maker the business from Robinhood is trivial in terms of $ amount it’s probably more interesting to them in terms of information.
Ok, I am not nodding anymore. The last page of @FremontTroll and @HoustonHusky broke my brain. My money is going back in the sock. Better pull my dick out first.
Comments
The squeeze was already obvious to everyone on Monday and Melvin was already underwater.
Citadel had no skin in the game why would they risk getting involved at that point in a stock they had no position on unless they got a great deal that wasn’t dependent on Melvin not getting squeezed further?
You realize Robinhood is in deep, deep trouble...wonder how their investors/backers are holding up.
https://www.zerohedge.com/markets/robinhood-caps-maximum-holdings-36-stocks-just-one-share
One day after the company drew down on its bank lines and obtain a $1 billion rescue capital investment, the company found itself in lockdown mode, allowing just a handful of shares to be traded at a time, effectively shutting down in all but name (it couldn't risk another day of furious public outcry and massive client departures).
However, just before the close, things got downright surreal when in a blog post the broker - which should probably change its name from Robinhood to Suit - made a shocking announcement: going forward, customers will be subject to maximum aggregate limits in 50 securities of which 14 are capped at position limits of just 5 shares, while allowing total holdings in 36 securities to be just one share!
Citadel didn't participate in any of Robinhood's 19 funding rounds. They are not an investor in Robinhood.
Citadel is a customer of Robinhood. They buy a large chunk of Robinhood's order flow.
This gamestop frenzy caused a liquidity issue for Robinhood because they have to post collateral to cover the time period in which their customer's trades settle (t+two business days) and they can't use customer funds to do so.
This is usually not a problem since a brokerage is able to net out the buys/sells of any given security to calculate the risk and hence the collateral needed.
But reportedly 56% of Robinhood's customers were long GME (and probably a negligible amount short or selling.) Robinhood was forced to post a rapidly increasing amount of collateral with the clearing broker hence the liquidity issue.
It is the opposite of a normal liquidity issue stemming from business deteriorating. Instead it was the result of a massive boom in business.
Citadel also benefited from that boom in business but was not subject to the regulatory requirements that Robinhood was.
I'm going to get baked later and read this thread again to see if I still agree.
You can argue about Melvin, but do you think any of the three would be better off if the market hadn’t been tampered with and GME went to $1,000 like many expected?
Robinhood ceo doesn’t come off so good here. What are the financial obligations he says they’re required to meet that led them to shut down GME trading?
A bunch of wildly out of the money GME call options are now in the money...let’s say as an example 1 $300 call option (100 shares) in the money with GME closing at $350. A bunch of RH investors hold it though time because they probably don’t know what to do, which means they now have to put up funds to buy the shares ($30,000).
They have, what 2 business days to fund it? Who is responsible for the $30,000 between now and then, especially assuming RH doesn’t have the funds?
Now say the next day GME crashes to $50 and RH reddit guy says FU...I’m not paying you $30,000 for 100 shares that are now worth $5,000...try and get your money. Who’s left holding the $30,000 bag on a stock that is now worth a bunch less, especially if RH is already broke.
I’m assuming the Clearinghouse (ie Citadel being the primary one), but I don’t know for sure.
But depending on the type of account you have and how much cash/margin you have brokers may take action on your behalf on Friday afternoon to avoid the possibility of the situation you outlined. You have to know the rules of your broker. It is pretty annoying when you sell a call or put that you thought expired only to find out your broker sold it 30 minutes before close.
If you get a margin call the broker may give you a few days to meet it or may sell stocks/exercise options in your account on their own. I guess if there wasn't anything to liquidate they could come after you.
In the meantime if your options exercise your account balance can look pretty strange until it is sorted out Monday morning. That is what caused that kid to commit suicide last year- he thought his Robinhood balance was -$730k but that was just because the put he sold was exercised but the stock wasn't showing up in his account yet. I assume Robinhood would have sold it first thing Monday morning and the balance would have been sorted.
Hopefully they've changed their rules since then I'm not sure.
One interesting situation that I've always wanted to take advantage of but never had the chance is that you can actually exercise your options up until Saturday (or Friday night end of extended hours depending on the broker.) So if your call was OOTM at noon on Friday but news was released after close and it became ITM you can get ahold of your broker to exercise. Sucks for whoever sold you that call.
Somebody holds the bag in the above case...who does that end up being?
I’m assuming you mean on the hook to these guys since they route most of their trades?
Citadel Clearing LLC
https://www.bloomberg.com/profile/company/1314823D:US
My point is if the above is true Citadel is in bed with RH whether they like it or not.
Citadel was very lawyerly in their response...they said they didn’t tell them to shut trading down. My point is they didn’t have too...all they had to do was just show them a model if trading continued how much Robinhood would have to pony up to them for different GME price scenarios knowing Robinhood didn’t have a chance in hell of having that money, and also knowing they were completely effed if they were stuck holding the bag trying to sue thousands of small-time RH account holders to try and recover their money on something that is going back to $10/share in a month if not sooner.
But yes this was the reason they restricted GME not any nefarious pressure from hedge funds. If GME buys reached a certain % of Robinhood orders (which surely happened) they would have had to post extra collateral for every additional GME trade per the formula. And yes, if all their customers lost on the same stock at the same time they would have to cover the loss until settlement.
Watch the interview of the WeBull CEO he explained the situation they were in much more transparently.
The thing is that they are now past the crunch. I really doubt there will be any three day period with more volume and swings in GME than the last three. People are gonna get bored and move on.
Also it’s not like Robinhood is letting it’s noon customers sell naked calls or puts with unlimited risk. The most advanced options level (which honestly anyone can get to) just lets you trade various types of spreads.
The thing to understand is that Citadel is important to Robinhood but Citadel doesn’t give two fucks about Robinhood. Citadel is easily the biggest market maker the business from Robinhood is trivial in terms of $ amount it’s probably more interesting to them in terms of information.