This is probably legit, unlike delisting it. You are taking a loan from them with the understanding that they can (in some circumstances) liquidate your investment to lower their own risk. This absolutely seems like one of those circumstances.
Not exactly. It would be as if the bank that mortgaged your house then prevented people from buying it, then turned around to you and said "See? Nobody wants it! You need to lower the price. Oh! What's this? The price has gone down, I need to reposses it. Thanks, come again!
These "here's why it's OK" legitimations are sounding just as cynical as the high profile insiders' rage against WSB that we have been hearing.
This is fast becoming a symbol of brazenly rigging of financial systems to ensure the house wins.
Hypocritical appeals to responsibility are half of what's causing all this rage. Sure, a responsible broker might reserve a right to liquidate your position in order to limit their risk. This isn't a responsible broker. They might also liquidate your position to limit their losses at your expense... or because the cabal said to.
We are not starting from the assumption that they (RH, Citadel, NASDAQ,etc... even the SEC) are acting responsibly, or in the interest of "mom & pop." They are playing heads I win, tails your lose... again.
The hedge funds got caught holding $10m puts with $1bn (so far) long tail risk. RH are in some sort of similar position. They make high, steady returns from such positions. Typical insider deal. When that long tail risk materializes, all bets are off... and this is not even a figure of speech!
The asymmetry is dumbfounding. Responsible actors! Market Fundamentals! The hypocrisy of it.
It's a cat and mouse game. This is a once in a lifetime event where you can push everything to extreme limits. As wall street gets more desperate they will resort to extreme and more extreme tactics. The average retail investor is not going for a win. They are trying to make the house expose all of the cheap tricks.
The end result is a checklist of publicly confirmed anti retail strategies.
But for the part where the current valuation was widely viewed as much too high. It does smell bad. I agree with how you framed it. I’m really grateful you wrote it that way as it makes it very clear how this feels deeply corrupt. I suspect this is a corner case which could bankrupt a broker though.
How can it be too high when there was a know market to buy them? Short seller positions are public, and they had already agreed to buy the stock by such and such date.
> It’s like the bank banning selling your home then repossessing it when the value falls.
Apples and oranges. If you bought a house on margin, the way a brokerage defines margin, they would absolutely be allowed to do that. Margin and mortgage are fundamentally different types of loans.
I agree that halting buys was absolutely wrong. Definitely see where you're coming from, if you look at the two actions together..it doesn't paint a very pretty picture.
No like I said they are fundamentally different. In a normal mortgage the bank cannot take your house if you make payments. With margin they can force you to sell if your account becomes too risky (usually happens because your positions lost value, but could also happen in cases like these where an investment is deemed to have a high probability of losing value). They can do this even if you are paying the interest on your margin on time.
> In a normal mortgage the bank cannot take your house if you make payments.
Depending on a loan agreement... It can
The last time this has happened en masse was as recently as 12 years ago.
Since then, people started reading loan agreements a bit more carefully, hence the decline in the number of banks demanding completely unconditional recall clauses.
Margin loans more like a performance bond. Unlike a mortgage, it gets called in when you cannot cover the loan. Speculation with margin is dumb for most people.
To be clear, RH (and others) blocked their users from trading those stocks. That’s separate from trading halts, which are initiated by the listing exchange based on algorithmic rules and apply for all trades in the US. The broker is in its right to give you a margin call anytime. It cannot liquidate your position if the stock is halted by the exchange, because all trades are halted during that time.
All that said, my personal opinion is that they couldn’t check in a code change to handle the increased collateral requirements, so the only feasible and somewhat legal way to save RH was to prevent its users from buying more. Pretty shitty, but then again, ever since RH crashed on 2020-02-29 because none of their devs thought of leap years, I can’t say I expect very much from them technology-wise.
What code change would you recommend? Sure, prevent margin buys-- but that's not enough. You'd need to require that the cash from a transfer has actually shown up. Perhaps even crossed some time after that.
And that's enough to make people pretty not-happy.
It sounds like now that they have a bunch of additional cash in hand they're going to allow (with limitations) GameStop buys again.
I'm ignorant. In your example, the bank manipulated the housing price and now owns the house, earning them an asset. The the Robinhood example, they (maybe) manipulated the price, and then forced you to sell, so you now have the money. They don't now own the proceeds from the sale (except what you already owed them). These don't seem similar.
Especially if they don't at least provide the opportunity to collateralize the position so the user can avoid selling at a loss if they want to try & wait out the trade ban.
I agree that it’s crooked to block buying of gme stock, but the resulting margin calls are well within the risks you agree to once you start trading with borrowed money
