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In the pre-dawn hours of Jan. 28, 2021, the financial trading firm Robinhood faced a $3.7 billion margin call from the clearing house that settles its customers’ trades.
For every trade Robinhood facilitates, it needs to have sufficient reserves, posted as collateral, for the two days it takes for trades to settle. The problem was that Robinhood only had $700 million for collateral—it was short $3 billion and had just a few hours to get the rest of the money.
Retail traders were using the app to buy up tons of volatile meme stocks like GameStop and AMC Entertainment, boosting their prices in attempted short squeezes—which meant Robinhood had to post commensurate amounts of collateral to stay solvent until those trades settled.
In the hours between the clearing house’s notice—first sent at 5:11 am US eastern time—and the 10 am deadline for the margin call, Robinhood executives pressed the clearing house for leniency and simultaneously tried to raise money.
The lobbying and fundraising efforts worked. The company also abruptly halted trading on volatile stocks like GameStop for the day, which limited its own immediate risk, but prompted an uproar from its customers and a congressional hearing and investigation.
Last week, more than a year after the GameStop short squeeze was front-page news, the US House Financial Services Committee’s Democratic staff released the results of its investigation (pdf), showing exactly how Robinhood averted financial disaster on a day when it should have gone under.
qz.com
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This is a real good article which summarizes pretty well the whole Robin Hood fiasco when it had to halt trading on Meme stocks and about how close they came to completely failing due to the margin increase requirement. I have no idea if this is the real deal or not since it seems to be based on a report from Congress. I just do not trust Congressional reports to get it right.
This is a real good article that sums up what happens according to the
For every trade Robinhood facilitates, it needs to have sufficient reserves, posted as collateral, for the two days it takes for trades to settle. The problem was that Robinhood only had $700 million for collateral—it was short $3 billion and had just a few hours to get the rest of the money.
Retail traders were using the app to buy up tons of volatile meme stocks like GameStop and AMC Entertainment, boosting their prices in attempted short squeezes—which meant Robinhood had to post commensurate amounts of collateral to stay solvent until those trades settled.
In the hours between the clearing house’s notice—first sent at 5:11 am US eastern time—and the 10 am deadline for the margin call, Robinhood executives pressed the clearing house for leniency and simultaneously tried to raise money.
The lobbying and fundraising efforts worked. The company also abruptly halted trading on volatile stocks like GameStop for the day, which limited its own immediate risk, but prompted an uproar from its customers and a congressional hearing and investigation.
Last week, more than a year after the GameStop short squeeze was front-page news, the US House Financial Services Committee’s Democratic staff released the results of its investigation (pdf), showing exactly how Robinhood averted financial disaster on a day when it should have gone under.
Robinhood nearly went under during the GameStop short squeeze
A Congressional investigation report details how Robinhood staved off a default by getting DTCC waivers and raising capital.
qz.com
---------------------------------
This is a real good article which summarizes pretty well the whole Robin Hood fiasco when it had to halt trading on Meme stocks and about how close they came to completely failing due to the margin increase requirement. I have no idea if this is the real deal or not since it seems to be based on a report from Congress. I just do not trust Congressional reports to get it right.
This is a real good article that sums up what happens according to the
