“The SEC vowed to to protect traders and promised to scrutinize actions taken by brokerages that may “unduly inhibit their ability to trade certain securities.””
2008 regulations should not have been repealed. Banks have no business making highly leveraged “investments”.
Even the 2008 crash and massive public funded bailout only resulted in temporary measures that were immediately rolled back. Doubtful the issues would be addressed this time.
The firms who manipulate prices through disinformation (“pump and dump” and shortsellers) should also be cracked down on. But that’s never going to happen.
Edit: Citron says they are not going to publish shorting reports anymore.
content://atws.fileprovider/document/atws_news_REUTERS%240e53b01a.html
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My question is how blocking only one side of the trade is helpful – except that it puts downward manipulative pressure on the market price.
My understanding:
“Buy” takes IBKR or their clearing firm putting up 100% (Because DTC thinks there’s some bankrupt hedge funds, despite none admitting – and for some reasonbecause the people aren’t poor, this is not illegal to lie about and there won’t be criminal consequences) collateral for T+2 settlement.
But doesn’t a “Sell” also cause a third party to have to put up 100% collateral and add stress to the system? So, when IB claims they have plenty of collateral and are doing it solely for other market participants – it seems to only “help the system” if manipulating the price down is accepted as the goal, correct?
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It does that of course, but if RH gets some sells and no more buys, now their net unsettled position in GME is going down and hence it lowers their capital requirements and the counterparty risks in the clearing system in general.
Citron translation - “we don’t want as many death threats and admitting you have a large short position is just putting a target on your back right now”
I covered nearly all of my non-hedging shorts and I do a lot of short selling normally. The market conditions are just too risky.
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A tax on trading would be bad - it’s been tried several times and it’s been a disaster and removed. Basically it locks people into positions because the spreads get much wider, liquidity gets worse, capital markets demand much higher returns / discounts on new capital or investment to compensate, etc. remember the fundamental rule of tax - if you tax it, you get less of it. Trading liquidity is good so people can change their mind on what investments are best with as little friction as possible - in this way, the market can most effectively aggregate all the opinions into a fair price and capital can flow to where it can be best out to work.
That said, the illusion of “free trading” sponsored by “payment for order flow” to hedge fund / market makers is very bad overall for the market. Their kickbacks bribe the broker to sell out your orders instead of seeking the best execution you could get. This in turn makes order flow more toxic on the open market, since all the dumb orders are picked off by the market makers and settled off the exchanges, so everyone who posts limit orders in the exchanges gets worse fills / adverse selection and the spreads get worse. And the worse spreads are mostly captured by… the sleazy market makers who created this problem in the first place.
for example, if a stock is $0.01 wide and you buy 5000 shares, you’re paying a $50 spread even if the trade is “free”. For example at TDA I recently placed such an order and was filled at $10.0098 or something with one of these market makers instead of the offer price on the exchange of $10.01. Sounds like a bargain? I guess it looks like I saved $1 on the order with a tiny discount to the offer price on all those shares. Well, it turns out that if you routed that order to trade at the midpoint, for example on IEX (not an exchange I love for their self-serving and often deceptive comments on the market structure, but the relevant one in this case), I would have paid $10.005 and hence save $25 instead of $1. I did this with the rest of my orders and got the much better price. The fact there was an order to sell at $10.005 and my broker was selling my order at $10.0098 means it’s easy money for the market makers and that’s why they’re paying TDA in this case something like $0.0030-0.0040 ($15-20 on this order) to screw me on execution.
This is why I pay for IB pro and commissions on a fee for service model, because good execution is worth way more than a few bucks of commissions.
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I was referring to IB claim specifically that they were protecting the market (but that they didn’t have the insufficient capital problems themselves. )
IB allowing only sales and not purchases seems like it would only be increasing the net unsettled position for whoever was allowed to take the other side of the “sell” trades.
From the perspective of those trading – how is a tax on trading different than brokerage fees on trading, functionally?
Both seems like similar friction in the system.
(Not Ilhan Omar’s PERCENTAGE tax, though – that seems more problematic than a flat settlement fee of some kind)
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The real costs of trading are much much lower for professionals than broker commissions. It might look the same to you, but it would look very very different to the market makers who now would have to pay them equivalent of high retail commissions on every trade. This means they would have to widen their spreads a lot in order to achieve the same level of profitability. Worse, as spreads get wider, fewer people trade and the lower the trading volumes, the longer the market maker on average has to hold their positions, thereby increasing their risks. So they have to widen the spreads even more for extra time risks, not just to make up for the tax costs.
And this will happen everywhere in the market. Every time you buy an index fund, the feds would be taking 0.1% of your money and you’d be losing these wider spreads to the market makers. Every time someone else in your index fund decides to sell, you pay part of that cost incurred by the fund.
And this will happen everywhere in the market. Every time you buy an index fund, the feds would be taking 0.1% of your money and you’d be losing these wider spreads to the market makers. Every time someone else in your index fund decides to sell, you pay part of that cost incurred by the fund.
Specific percentage aside – how is that mechanically different than a trading fee?
Would like to have a better appreciation for the difference.
I am wondering if Robinhood is going to go bankrupt. They have having to draw down credit lines to settle trades, customers leaving for other brokerages, and are facing a lot of lawsuits.
seems doubtful. That’s what their line of credits are there for.
Actually losing these new lawsuits would be highly unlikely. (Unless there really was organized manipulation between them and Citadel).
RH had lots of crazy failures last year that were not just limitations that several other brokers are also doing, some in an even more restrictive manner.
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I think the shorts are right in their thesis. GameStop is a company that is closing locations. Games are moving to digital download and they won’t be able to compete with Amazon and Walmart for online sales. Revenue is down for the last several years and Covid put a big hit to the business.
Where they went wrong is just being too greedy and a lack of risk management. GameStop fell 95% and they kept shorting. That is like trying to pickup pennies in front of a steam roller.
For the final chapter of this stock I would estimate the fair value for the stock is somewhere around $20 to $30 a share, so a lot of people are going to end up disappointed. Margin calls, options expiring worthless, retirements wiped out… it is going to be a bloodbath.
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https://www.washingtonpost.com/business/2021/01/29/robinhood-citadel-gamestop-reddit/?outputType=amp
IB sent out some carefully worded emails trying to cover their backs… Saying the opposite of what their chairman said on TV.
Also I received one warning me about “my 1/29” short option and that I should close it during regular hours. I have no 1/29 expiry options, earliest are next Friday. "“Accidental” mistake?
Robinhood<>Citadel and IB<>Citadel relationships need to go under a microscope. Probably it is all above board.
No difference if you’re talking about a fee / tax that’s applied equally to all. That’s very unlikely to happen though, since you don’t have millions to bribe congress to write a loophole for you like Citadel and the rest of Wall Street.
The UK has a tax like this ( 0.5% “stamp tax”) and all the institutions don’t pay it via an exception, only retail. And local UK traders trade derivatives now instead (CFDs) which are like side bets on the price rather than owning the stock to avoid it. So really the only ones who pay it are suckers like foreign retail who want to buy a UK stock that doesn’t trade elsewhere since the SEC has banned us from trading CFDs for our own protection 
. Whole lotta work for very little revenue and to damage the market in the process.
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Agree, the last folks to pile up will get hurt the most. Those who bought early this month and sell before the inevitable drop will do well, very well.
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I agree with your FMV. How about shorting now? Is there a way to just buy short and hold, just like you do long?
I understand mark to market losses in the interim but the short sellers are holding on…
How much interest are you willing to pay to wait it out? 100%?
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Kind of hilarious, this guy has been under indictment for securities fraud yet he’s launching a “probe”…
But, they do need to bust up the brokers who have strong financial ties or are wholly reliant on Citadel and colluded to cover the shorts…
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ahh. there’s the rub, interest. Now I remember Vanguard used to share the short interest with long ETFs that have negative fees. I thought it was a flat amount .
I predict the crash is coming soon and this will be the new version of CNN heros (I miss that FWF thread!)
https://www.cnn.com/videos/business/2021/01/29/trader-millionaire-gamestop-stock-orig.cnn