Then why are they in this business if they don’t have the collateral? If I have the money in my RH account to buy the stock, why can’t I buy it? I understand restricting buying on margin because obviously that’s affected by volatility, but if I am bringing cash to a transaction, why is it suddenly restricted?
I don’t really have a horse in this race, I am just trying to understand how it’s ok for them to put their thumb on the scale in this way and then say that they didn’t have enough collateral and someone that is retail investors’ problem.
> Then why are they in this business if they don’t have the collateral?
The grocery store doesn't deserve to go out of business if they run out of paper towels sometimes.
> but if I am bringing cash to a transaction, why is it suddenly restricted?
They can't use your cash as collateral due to preexisting rules (part of new regulations after 2008). They have to use their own, and in this case it wasn't infinite.
They aren’t a grocery store. If they were out of GME stock to buy nobody would hold it against them. That wasn’t the case.
I clearly don’t understand the regulations around this. It seems to me that when stock is volatile is exactly when I should be buying and selling and if my broker can’t make that happen it’s a problem, no? And it’s also a problem that their inability to trade that stock affects the price. So what is the correct solution here?
They effectively were "out of GME stock". They usually have to put up 10% (or something) per share collateral with DTCC to send out more buys, but the volatility meant that it went up to 100% collateral, so they couldn't afford to allow purchases. This happens based on a formula where one of the factors is GME being the #1 stock being purchased that day on RH.
> It seems to me that when stock is volatile is exactly when I should be buying and selling and if my broker can’t make that happen it’s a problem, no?
If a stock is volatile you should not be buying it, that's how you lose money. The people who profit are market makers like RH's Citadel, who get paid on every trade.
> And it’s also a problem that their inability to trade that stock affects the price. So what is the correct solution here?
Technological improvements like the one RH's CEO wrote this article about. Btw, for reasons I've forgotten RH's collateral issues got even worse as the price went down again - if it kept going up it'd actually be more possible for them to continue providing buys.
Ok so they essentially couldn’t trade outside their own system? Or are trades inside their own platform still subject to clearing through the clearing house?
I think they could have traded within their own platform (not 100% sure), but customer interest in buying was so high that they weren't able to fill trades that way. Other brokers had more sales and that's why they didn't have to restrict buys as hard, although they did still restrict them.
I don’t really have a horse in this race, I am just trying to understand how it’s ok for them to put their thumb on the scale in this way and then say that they didn’t have enough collateral and someone that is retail investors’ problem.