> The CEO of Robinhood went onto CNBC and lied about why they restricted trading.
I'm sorry, but it is a fact of banking that you can never, ever, admit to having liquidity issues. If it triggers a bank run, then the firm is dead, and, notably, not only the employees and managers of the firm suffer, but also the clients; and they suffer more than if the run had not happened. So, what you portray as a huge nefarious plot here is just a CEO of a startup trying to keep things going until they calm down again (which, incidentally, seems to have worked).
Next, the other issue with the $65m fine. As it happens, this has been discussed in depth by Matt Levine in his excellent "Money Stuff" column [1], and it's not quite as nefarious as you portray it either.
Brokerages make money from a couple of sources: 1) interest on customers' cash balance (which they might pass on or not), 2) borrow fees from lending out stock to short sellers, 3) commissions, and 4) payments from market makers for order flow [2], which basically constitute a discount on the bid-ask-spread.
Most brokers used to charge commission (3), but passed on most of the discount (4), giving clients a very good bid-ask-spread. What Robinhood did is charge less commission (3) (namely zero), but keep more of the discount (4), giving clients a worse bid-ask-spread.
If you have small orders, you're better of with the Robinhood model of smaller fixed cost, and a somewhat higher (and hidden) proportional cost, namely a higher bid-ask-spread (ie slightly worse price). But for customers with big orders, a different broker with a small fixed fee, but a better discount = smaller bid-ask-spread = better price might have been better.
(Note, btw, that everyone got prices equal to or better than the national best bid offer! It's just that you got more or less further discount on top of that.)
I agree with Matt Levine that Robinhood had a compelling offer, and should have just positioned it a bit better.
But again, that $65m fine was basically for not telling big clients that btw, with your size you might be better off at the competition where you pay a fixed fee but might get a better price. Yeah, not exactly Mother Theresa, but hardly egregious.
There really really is enough disgusting rent seeking going around in the financial sector (student loans, payday loans, credit cards & merchant fees, HFT, ...) that you should save your ire for that.
[2] market makers pay for retail order flow (aka "dumb money") because it tends to be small and uncorrelated and "uninformed", ie not specially predictive on price direction; so they like it better than institutional "informed" flow which might leave them with positions that lose money subsequently (adverse selection). However! As this episode showed, retail money might not be small and uncorrelated and uninformed anymore, so we'll have to see how that shakes out - I as a market maker wouldn't want to pay brokers more for sending the WSB hordes my way instead of hedge funds.
> I'm sorry, but it is a fact of banking that you can never, ever, admit to having liquidity issues. If it triggers a bank run, then the firm is dead, and, notably, not only the employees and managers of the firm suffer, but also the clients; and they suffer more than if the run had not happened. So, what you portray as a huge nefarious plot here is just a CEO of a startup trying to keep things going until they calm down again (which, incidentally, seems to have worked).
I dunno. The webull ceo discussed why they had to shut down buying, and his explanation actually made sense. He explained the T+2 system and why that was causing them to run into issues. The Robinhood ceo could have said something similar, and it wouldn't have caused a bank run + it wouldn't have felt like the ceo was hiding something from us (arguably even worse).
It’s gonna go fine in front of a judge. They will say look at our terms of service, what we did is explicitly allowed. The judge will immediately rule for them and no public interviews of the CEO/Founders will ever be an issue.
Not only is what they said vague, but they had a very clear responsibility not to provoke a run on the bank.
> I'm sorry, but it is a fact of banking that you can never, ever, admit to having liquidity issues. If it triggers a bank run, then the firm is dead, and, notably, not only the employees and managers of the firm suffer, but also the clients
I'm sorry, but "we lied to you for your own good" is still lying.
I'm sorry, but it is a fact of banking that you can never, ever, admit to having liquidity issues. If it triggers a bank run, then the firm is dead, and, notably, not only the employees and managers of the firm suffer, but also the clients; and they suffer more than if the run had not happened. So, what you portray as a huge nefarious plot here is just a CEO of a startup trying to keep things going until they calm down again (which, incidentally, seems to have worked).
Next, the other issue with the $65m fine. As it happens, this has been discussed in depth by Matt Levine in his excellent "Money Stuff" column [1], and it's not quite as nefarious as you portray it either.
Brokerages make money from a couple of sources: 1) interest on customers' cash balance (which they might pass on or not), 2) borrow fees from lending out stock to short sellers, 3) commissions, and 4) payments from market makers for order flow [2], which basically constitute a discount on the bid-ask-spread.
Most brokers used to charge commission (3), but passed on most of the discount (4), giving clients a very good bid-ask-spread. What Robinhood did is charge less commission (3) (namely zero), but keep more of the discount (4), giving clients a worse bid-ask-spread.
If you have small orders, you're better of with the Robinhood model of smaller fixed cost, and a somewhat higher (and hidden) proportional cost, namely a higher bid-ask-spread (ie slightly worse price). But for customers with big orders, a different broker with a small fixed fee, but a better discount = smaller bid-ask-spread = better price might have been better.
(Note, btw, that everyone got prices equal to or better than the national best bid offer! It's just that you got more or less further discount on top of that.)
I agree with Matt Levine that Robinhood had a compelling offer, and should have just positioned it a bit better.
But again, that $65m fine was basically for not telling big clients that btw, with your size you might be better off at the competition where you pay a fixed fee but might get a better price. Yeah, not exactly Mother Theresa, but hardly egregious.
There really really is enough disgusting rent seeking going around in the financial sector (student loans, payday loans, credit cards & merchant fees, HFT, ...) that you should save your ire for that.
[1] section Robinhood(1) https://www.bloomberg.com/opinion/articles/2021-01-07/the-ip...
[2] market makers pay for retail order flow (aka "dumb money") because it tends to be small and uncorrelated and "uninformed", ie not specially predictive on price direction; so they like it better than institutional "informed" flow which might leave them with positions that lose money subsequently (adverse selection). However! As this episode showed, retail money might not be small and uncorrelated and uninformed anymore, so we'll have to see how that shakes out - I as a market maker wouldn't want to pay brokers more for sending the WSB hordes my way instead of hedge funds.