Source: https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea56... Excerpt: "Robinhood, the online brokerage at the centre of wild trading in equities this week, has raised more than $1bn from its existing investors and tapped credit lines from banks to shore up its financial position after a turbulent four days. The company has drawn down at least several hundred million dollars via a credit facility with banks led by JPMorgan and including Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo, according to people familiar with the move."
What's the implication here, that "they were able to raise capital within a very short time frame so they didn't have to restrict trading"? Of course we know after the fact that they were able to secure funding. What if by 1pm they ran out of money and didn't know whether the funding would be secured or not? Do they continue allow trades and hope that the funding will come through? Do they issue a hasty statement and halt all trading?
Likewise, it is not unreasonable for investors to expect that a broker would actually possess the shares that the investor has purchased, and it is expected that the broker would make a timely effort to procure actual shares after acknowledging that an order was filled. It seems that perhaps this expectation was broken by Robinhood's bizarre book-keeping practices. The "extenuating circumstances" are simply a result of Robinhood deciding to play a game of brinkmanship, and rather than owning up to the problem and paying out of pocket for their mistake, they decided to hurt their own customers.
EDIT: I'd like to cite some articles which hopefully provide insight into Robinhood scrambling to locate shares on transfers to other brokers, and the unusual amount of reported fails-to-deliver that immediately occurred at the time that Robinhood took action. https://www.cnbc.com/2021/02/05/ftc-sees-surge-in-robinhood-... https://www.bloomberg.com/news/articles/2021-02-17/sec-data-...
People buying high risk securities isn't uncommon, but everyone piling on to the same high risk security at the volumes seen that week is uncommon.
>Likewise, it is not unreasonable for investors to expect that a broker would actually possess the shares that the investor has purchased, and it is expected that the broker would make a timely effort to procure actual shares after acknowledging that an order was filled.
Did robinhood fail to do deliver shares? Also keep in mind robinhood doesn't operate like amazon. They're not fulfilling orders from shares they have on hand. Them being able to deliver the shares is contingent on the clearinghouse being able to deliver the shares. Them not being able to because the clearinghouse and/or their counterparties weren't able to shouldn't really be blamed on robinhood themselves.
You can get angry at Robinhood for being a clownfire and I won't argue. But you're saying much more than that.
Posted collateral also isn't "very liquid"; the whole point of that money is that if shit goes sideways --- and everything was going sideways at Robinhood --- that money will get spent making counterparties whole. Robinhood couldn't just give the money back to its lenders.
The $3B collateral call was withdrawn just as quickly as it had been made - even better, since they raised $1B against what seems to be no collateral call. Robinhood actually had two ways of resolving the situation. One was to admit fault and either liquidate the underlying securities or have a portion of their clearing position liquidated, which would have resulted in the ability to return collateral and to be on the hook for the losses they caused for their customers. The other, was to restrict purchases on securities that either were thought to contribute to the VaR collateral assessment, or for which Robinhood's bookkeeping did not match between investor accounts and actual cash/security holdings.
As it turns out, neither of these options was necessary according to the facts at hand - Robinhood's collateral call was withdrawn prior to Robinhood taking any action at all, and according to media sources in a Fortune article, no negotiation took place between the NSCC and Robinhood. So there must be another reason that Robinhood's books were not balanced. However, Robinhood used the second option anyway. This is the circumstance which has led to the WSB "conspiracy" theory that you discounted in other comments, which explores the idea that Robinhood is somehow involved, either willingly or not, in some type of market manipulation in conjunction with their payment-for-order-flow market maker, Citadel, who fills basically all of their orders for them. I'm not sure that "conspiracy" is the word to use when fines, penalties, and settlements for breaking securities law are commonplace among financial institutions, but that is just my opinion.
