Have you ever heard of the Depository Trust & Clearing Corporation? What about Cede and Company? If those names are foreign to you, then you don’t really understand how the core of our financial system really works. A lot of people are blaming Robinhood CEO Vlad Tenev and the heads of other major trading platforms for the stock trading restrictions that we witnessed last week, but it was actually the DTCC that suddenly jacked up deposit requirements ten-fold. Robinhood and other trading platforms were put in a vise-like grip, and they had no choice but to act. Someone needs to investigate how these decisions were made at the DTCC, and if laws were broken those that were responsible for the decisions need to go to prison.
Why doesn’t anyone ever talk about restricting their exceedingly foolish trading strategies?
Thanks to relentless buying by “the Reddit Army”, several major hedge funds got absolutely slaughtered last week, and that group included Melvin Capital…
Melvin Capital, a premier Wall Street hedge fund entangled in the frenzy over GameStop (GME), lost 53% in January, a source familiar with the matter told CNN Business.
Melvin, a major short-seller of GameStop, bet that the company’s shares would drop. But, on January 11, GameStop announced new board members who could help it with digital sales. That set off a fury on Reddit, namely subreddit WallStreetBets, which catapulted GameStop’s stock more than 1,600%.
Of course the small fish are not supposed to beat up the big fish like that, and the billionaires at the big hedge funds undoubtedly reached out to their powerful friends for help.
There had been speculation that the big hedge funds leaned on Robinhood CEO Vlad Tenev and the heads of other large trading platforms directly, but the truth is more complicated.
It turns out that the pressure on Robinhood and other major trading platforms came from the clearinghouse level. The following comes from a piece in USA Today that was authored by Vlad Tenev himself…
In a matter of days, our clearinghouse-mandated deposit requirements related to stocks increased ten-fold. These deposits are the collateral we post to ensure our access to clearinghouse services on behalf of our customers. They are what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on. As we noted in a blog on Friday, it was not because we wanted to stop people from buying these or any stocks — we built Robinhood to provide access to investing for all. And it certainly wasn’t because we were trying to help hedge funds.
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