Let us be fair to Robinhood.Popular investing app Robinhood became the focus of the controversy after it decided to freeze trades for GameStop on Jan. 28.
https://www.cnet.com/personal-finance/i ... ntroversy/
The correct price for GameStop was infinite- or a price functionally as high.
That isn’t a valid price. As such, the price would continue to go up until the weakest link broke. That weak link was Robinhood. If not them, it would have been another broker.
They stopped trading GameStock because by regulation they couldn’t trade it anymore. As a result of Lehman Brother’s collapse brokers need to post collateral in case they go bankrupt in order to minimize counter party risk. Normally this is a nominal amount but because of the insanity around GameStop it was probably around 100%. Robinhood, a midsize brokerage, ran out of capital to post collateral.
Instead of freezing trade orders do you suggest that they violate capital requirements?
Note, I work in risk management and a fair amount of my time is spent with counterparty risk. I question some of the decision that Robinhood made to get to thus point- specifically self clearing- but once they got there they had to shut down trading. Only choice they had.
Statistics: Posted by alex_686 — Wed Mar 13, 2024 9:21 pm — Replies 20 — Views 897