r/WallStreetBets vs. Hedge Funds ($GME)

A big, important story with lots of angles. (Most not within my bailiwick, except for emergent, collective action; innovator/incumbent interaction; and, broadly, currency/trading systems. For those angles, hoo boy, this story is a doozy.)

Here’s the brief overview:

A couple takes I appreciated:

And https://marker.medium.com/gamestop-proves-were-in-a-meme-stock-bubble-b3f39163a77f

In an odd way, it’s a remarkable testament to the internet’s ability to facilitate collective action.

part of a longer thread:

Citadel is the firm that bought up Melvin at a huge discount. There is some talk that Citadel is behind some of this or certainly took advantage of the situation

It’s not clear whether this person is saying they think this happened, Citadel working with RobinHood, or is it a theory or speculation or…? No proof offered by them…

@Toxic covers this pretty well (including thoughts about legality) in his Twitter thread, and in replies to questions it generated.

Step 0: Citadel pays Robinhood for order flow. Citadel gets to see RH’s orders a few milliseconds before they’re filled. Citadel may choose to front-run some of those trades.

Do you think this is fact? Does Citadel have some arrangement with RobinHood? That is the part that wasn’t clear to me, do they have common owners?

This topic will get out of my depth quickly, but here’s what I read:

“…another hedge fund, Citadel, has since bailed out. Citadel’s founder is Ken Griffin, who also founded Citadel Securities, a big investor in Robinhood that also works with TD Ameritrade and Charles Schwab.” (TheWeek)

So, there’s Citadel the hedge fund, which is closely aligned with Citadel Securities, which is a big investor in Robinhood.

@Toxic says:

The pay for order flow? No, it’s a standard practice. How Robinhood routes its orders is not standard, and they’ve been fined for being less-than-transparent about it.

Since they’re now quite clear about routing orders to Citadel, RH is acting legally, if not ethically.

I didn’t look for the disclosures themselves, but he’s basically saying that Robinhood was forced to be more clear about its dealings, and from that, they say they route orders to Citadel.

I can dig around for more info, if you’ve got specific info you’re looking for. I may or may not be able to find it. :slight_smile:

also see:

Twitter Freaked Out Over Robinhood Selling Its Trade Flow. But the App — and Others — Have Been Doing It for Years. (Institutional Investor, 2020-06-15)

this is certainly not the most important next step as the world deals with our new understandings here, but…

i would love to see a large series of flow diagrams about how all this stuff is put together.

So a big question is to what extent (if any) Citadel people instigated the Reddit Nerds and/or did they (Citadel) place trades based on the inside RobinHood knowledge and what role does Citadel have (if any) of RobinHood now freezing their users ability to sell GME and other key stonks.

My guess is “very little to none”, or at least, “not really in any way that is currently illegal and exposes them to large fines”.

@Toxic is pretty clear that Citadel could (i.e., did) made money on information asymmetry and structural flaws in the system: “Step 5: Citadel still has access to RH order flows, is still allowed to front-run them and/or pocket the spread, and can use that and other information to determine the next over-leveraged fund that’s going to get squeezed.”

Citadel doesn’t have to instigate, it just has to instrument the various message boards to watch the stochastic froth, and then act on the concentrations/spikes that will naturally happen.

Then on the back end, they just exploit information asymmetry in a novel way that is not yet defended against nor illegal.

I don’t know if this thread means anything or not. But it pushes a date back a ways…

Really good thread on the mechanics/plumbing of the money and promises that flow underneath something like Robinhood and shorting $GME:

or

Doesn’t help you divine who won/lost/good guys (lol)/bad guys, but at least helps you understand the general flows.

It’s taking some time to get to the bottom, this thread is a good help.

Not all short sellers are bad. Robin Hood stopped trading due to not having collateral, not for some nefarious reason. Selling “trade flow” seems like a bad idea but no one was talking about it (Robin Hood sells its trade flow to Citadel).

The flaws in the financial system are exposed. I hope that ignites more OGMers to investigate Bitcoin, or as a first step, investigate What is Money? A good book for this crowd is The Bitcoin Standard, recommended.

email from Robinhood to customers:

We wanted to reach out to you after a transformative week in the markets to answer a question we know many of you are asking: “Why did Robinhood limit certain stocks?”

We understand that the temporary limits we placed on certain stocks this past week were frustrating for many, especially since we built Robinhood to expand access to investing. We have always sought to put our customers first and we want you to be able to invest on your own terms.

To help explain what happened and why we had to take action, we wrote a letter to our customers and captured the key understandings for you below:

  • For Robinhood to operate, we must meet clearinghouse deposit requirements to support customer trades.
  • Deposit requirements are determined in part by how much stock a firm’s customers hold. If a firm’s customers’ holdings are volatile, a broker (in this instance Robinhood) is obligated to meet higher deposit requirements.
  • Last week, in part due to volatility in some popular stocks, Robinhood’s deposit requirements rose tenfold. The combination of the deposit increase and the extraordinary increase in volume on these particular symbols led us to put temporary buying restrictions in place on a small number of those stocks.
  • We had to take steps to limit buying in those volatile stocks to ensure we could comfortably meet our deposit obligations. We didn’t want to stop people from buying stocks and we certainly weren’t trying to help hedge funds .
    We hope you take away this: at Robinhood, we stand with everyday investors participating in the markets . Standing by our Robinhood community means being there for our customers through any trading environment. We’ll continue to improve as we break down barriers in the financial system to open it for all.

Thank you for being a part of the Robinhood community.
Sincerely,
The Robinhood Team

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