10 Facts About The Game Stop ($GME) Situation With Robinhood.
Is It Market Manipulation? Or Wall Street Changing The Game?
All throughout this week, we have seen, the subreddit group, r/WallStreetBets come together to shortsqueeze hedge funds out of their positions. Americans have had enough of the rich changing the system and hurting the little guys. Some happen to love GameStop and think short term it will continue to improve, some want Melvin Capital Management that was able to get away with actions that caused the 2008 Recession to pay.
The actions of these hedge fund companies still impact us in 2021. In COVID, the aftermath of the 2008 Recession and lack of everyday American bailout led to some of the suffrages we see currently in our U.S Economy. Where we continued to see corporate bailouts, while the White House debated for months for stimulus packages for the US economy. Despite Jerome Powell, from the Federal Reserve having multiple meetings stressing over the need for stimulus to get the economy back in a good position.
Below, I have done intensive research on the events that have impacted with Robinhood, Melvin Capital Management, Point72, Citadel, the current US Treasury Secretary, and the DTCC. Full disclosure, Robinhood was not the only firm whom halted trades, other brokerages came to the same decision. Robinhood has high popularity for younger investors in retail brokerage accounts, and participated in the media uproar that took place on Twitter.
1 In Robinhood Customer Agreement It Allows For Restricting Trading of Securities:
In Robinhood Customer Agreement, Robinhood says:
“I understand that Robinhood may, in its discretion, prohibit or restrict the trading of securities, or the substitution of securities, in any of My Accounts. I understand that Robinhood may execute all orders by Me on any exchange or market, unless I specifically instruct Robinhood to the contrary, Robinhood shall have all rights and remedies available to a secured creditor under all applicable laws and in addition to the rights and remedies provided herein. I understand that Robinhood may at any time, at its sole discretion and without prior notice to Me: (i) prohibit or restrict My access to the use of the App or the Website or related services and My ability to trade, (ii) refuse to accept any of My transactions, (iii) refuse to execute any of My transactions, or (iv) terminate My Account.”
This Robinhood Customer Agreement is what every users signs and agrees to when creating a Individual Brokerage Account (IBA) with the Robinhood company. Meaning the halting of investment trades, only allowing the sell of these investments during high volatility may have not been manipulating the market, if users agreed to said policies.
Also rumors of Robinhood executing sales without the owners permission, would also be completely legal under the policy that users signed when using the platform.
2 Robinhood Provides Users Account and Personal Information to Third Parties Using API’s:
In Robinhood Customer Agreement, they also discuss that API licenses can access users personal information, and how the API licenses use their personal information is not their liability but the responsibility of the user and the third party API licensee product. As specified here:
Through My use of any API Products, I may be providing API Licensees with access to My Account and Personal Information. By using any API Products, I acknowledge that such API Products may employ security, policies, procedures and systems of API Licensees which may or may not be less stringent and secure than Robinhood’s policies, procedures and systems. I agree that My use of any API Products shall be subject to the terms and conditions of this Agreement, in addition to any other agreements which I executed with respect to any such API Products. I understand and agree that any end user agreement that I executed with any API Licensee is concluded between Me and such API Licensee only, and not with Robinhood; and such API Licensee, not Robinhood, is solely responsible for such Licensee Product and the content thereof. I understand and agree that the API Products may deliver Personal Information to Robinhood, and that Robinhood is authorized to receive and store such Personal Information consistent with Robinhood’s then-in-effect policies and procedures. Further, I agree that the API Products may request Personal Information stored by Robinhood, and I consent to Robinhood’s disclosure of such Personal Information to the API Products.
Allowing future third parties that use or intergrade Robinhood API’s in any shape or form, can have access to the public data and information of its users. In addition, if a user was to be upset or against the actions the API product completed, it would be the responsibility of the user to reach out to the third party API product, and provide Robinhood completely out of liability.
3 Robinhood Clearing House Apex Product InvestClouds Uses Robinhood, Webull, Stash, Wealthfront, Betterment, Sofi, and Others Data To Provide To RIA Advisors and Hedge Funds User Data.
Apex Clearing today removed Robinhood from their main home page after the incident that occurred with Robinhood yesterday in the stock market. They still have it on their website but under a secondary site.
Although when you search on their website, Robinhood news still comes up from the past, and an article about their partnership with InvestCloud.
InvestClouds is a “California-based company that provides a global presence, known for first class, financial digital solutions, pre-integrated in the cloud…. with over 700 clients & over $2 Trillion of assets in just 10 years.”
Some of InvestCloud partners includes, Oppenheimer & Co Inc, JP Morgan, Westwood Holdings Group and more companies.
Apex Clearing, “has selected global FinTech firm InvestCloud as a technology partner to offer a new digital advice platform. Apex’s offering will allow FinTech startups and financial institutions alike to quickly take to market differentiated and personalized digital advisory services, using a fully featured, hyper-modular technology platform, with integrated, API-enabled custody and clearing services.”
Using their API information from Robinhood and other partners of the Apex Clearing house made available to Investcloud, they are easily able to share data information on clients to partner firms. Some of these firms can be: RIA, Hedge Fund and Private Equity Firms, and Brokerages accounts.
4 The Gamification of Robinhood Was a Data Growth Strategy By CGO of InvestCloud.
Mark Trousdale, EVP, InvestCloud’s Chief Growth Officer (CGO) was interviewed for an article with The Fintech Times, about how gamification boost digital engagement for financial institutions. He suggest that in 2020, so much of our lives have become digitalized, to the point business largest competition is our attention.
“Gamification is not a new concept. In recent years, social media companies have harnessed it to great effect — making their platforms indispensable by imbuing them with genuinely compelling features as well as instilling empathetic incentive and reward systems into the experiences. Think of push notifications to encourage a sense of urgency or how they develop a sense of community amongst the millions of people who log in daily.
There are other less obvious business benefits to implementing these techniques. Gamification is also a powerful tool for data collection — the heart of any financial firm.”
These are the same concepts that Robinhood was reported to implement in there own platform. On December 21st, 2020, Investopedia, reported that Robinhood had to pay a $65 Million settlement to the Securities and Exchange Commission (SEC) after investigating into how Robinhood has gamified its platform.
Only proving, that the relationship that Robinhood has with it’s clearinghouse, is deep. That partners of their clearinghouse has an influence in decision making on its platform UX/UI design in order to help improve data collection and possible IoT (Internet of Things) to it’s Customer Relations Management (CRM) cloud database.
5 Robinhood and Citadel Securities Relationship
According to Forbes, the secret behind Robinhood founders success is that from the beginning was their profitability in payment for order (PFOF) orders. Meaning instead of Robinhood taking commission fees for profit, founders Tenev and Bhatt made money lowkey through market makers. Forbes describe this as:
“…large, sophisticated quantitative-trading firms like Citadel Securities, Two Sigma Securities, Susquehanna International Group and Virtu Financial. The big firms would feed Robinhood customer orders into their algorithms and seek to profit executing the trades by shaving small fractions off bid and offer prices.”
Majority of Robinhood’s profit actually comes from these trading firms. Going against these trading firms, would eventually hurt the bottom line of Robinhood, and further ruin relationships with other trading firms. Robinhood never cared about democratizing the platform, but making a profit with the rich off the 99%.
Forbes goes on to say, “ Unlike most of its competitors, though, Robinhood charges the quants a percentage of the spread on each trade it sells, versus a fixed amount. So when there is a large gap between the bid and asked price, everyone wins — except the customer. Moreover, since Robinhood’s customers tend to trade small quantities of stocks, they are less likely to move markets and are thus lower-risk for the big quants running their models. In the first quarter of 2020, 70% of the firm’s $130 million in revenue was derived from selling its order flow. In the second quarter, Robinhood’s PFOF doubled to $180 million.”
Robinhood doesn’t care about the democratization of the stock market. All they clearly care about is profiting off the backs of their customers with large trading companies. Pulling insider trade profit opportunities to help influence individuals like Melvin Capital Management do better at the end of the day.
6 Google and Robinhood’s Relationship:
On January 28th, The Verge reported that over 100,000 (1) star reviews of Robinhood App was deleted in the Google app store. This is not surprising. In the Robinhood Customer Agreement, Robinhood admits that Google and Robinhood profit off each other.
“We participate in interest-based advertising and use third-party advertising companies to serve you targeted advertisements based on your online browsing history and your interests. As a self-directed broker-dealer, we do not advertise on behalf of specific securities or investment options on our Services. We permit third-party online advertising networks, social media companies, and other third-party services to collect information about your use of our Services over time so that they may play or display ads on other websites, apps, or services you may use, and on other devices you may use.”
Robinhood gets a profit for providing personal data to companies like Apple and Google that is used in helping them create more targeted advertisements through apps and websites. Meaning it’s in the best interest of Google, to make Robinhood look well presented on the application in other to gather information on their consumers for other competitors in the space.
Robinhood goes on to include that is shares users Email Addresses or User IDs to their third-party advertising partners to help identify you across devices. Using Google Analytics to recognize you, link your devices, and knowledge of when you use their account through cookies.
7 Biden Pick Department of US Secretary of Treasury, Janet Yellen Received Over $800K From Citadel and Point72.
Fox News today disclosed the news that Biden pick that the Senate confirmed Monday, was receiving money from Citadel. Prior to her current position, Yellen served as the Federal Reserve Board Vice Chair from 2010–2014. In 2004–2010, she served as the President of the Federal Reserve Bank in San Francisco. In addition, she served on the White House Council of Economic Advisor Chair from 1997 to 1999.
In all her positions she served in powerful positions of our fiscal and monetary policy. Meanwhile receiving financial advancements from hedge fund companies, that may have had influence in financial decisions. Especially since she was working during the time of the 2008 Great Recession, that was caused by Hedge Funds and Private Equity firms that received monetary benefits from.
8 Citadel and Point72 Pays $2.75B To Melvin Capital Management.
According to Bloomberg Article:
“Hedge fund titans Ken Griffin and Steve Cohen boosted Gabe Plotkin’s Melvin Capital, injecting a total of $2.75 billion into the firm after it lost about 30% this year.
Citadel funds and firm partners will invest $2 billion, while Point72 Asset Management’s investment will be $750 million, the firms said Monday. In return, the investors will get a non-controlling revenue share in the six-year-old hedge fund. Melvin Capital may receive an additional $1 billion infusion from other investors on Feb. 1, according to a person familiar with the plans.”
Due to the fallout of Melvin’s Capital Management short squeeze, Citadel and Point72 make an equity deal with the company in order to bring capital to the market. It’s in the best favor of these companies to do so, since it impacts all of their bottom-line.
The hedge fund companies are taking the time to come together to help the rich win. Since Robinhood only allowed selling of securities on the platform, the opportunity for all investors on 13 stocks, it looks like a planned teamwork agenda to undermine the integrity of the financial markets. In an effort to help the hedge funds win. Especially since it helps Robinhood bottom-line if hedge funds win the market.
9 Robinhood Raises $1B From Investors
On January 29th, 2021, Bloomberg reports:
The stock market’s central clearing hub had demanded large sums of collateral from brokerages including Robinhood that for weeks had facilitated spectacular jumps in shares such as GameStop Corp.
A spokesman for the DTCC wouldn’t specify how much it required from specific firms but said that by the end of the day industrywide collateral requirements jumped to $33.5 billion, up from $26 billion.
It’s not really Robinhood doing nefarious stuff,” said Bloomberg Intelligence analyst Larry Tabb. “It’s the DTCC saying ‘This stuff is just too risky. We don’t trust that these guys have the cash to be able to withstand settling these things two days from now, because in two days, who knows what the price could be, it could be zero.”
In response to the new changes of the DTCC in collateral required to fully process a trade and the growing anger from the retail investors that use Robinhood, the trading platform was required to take out a credit line in order to remain a competitive advantage in the market. However, some of Robinhood investors including the hedge fund companies that are attempting to artificially win in the financial markets, by changing the rules in the middle of the game.
According to the Investopedia, The DTCC is the Depository Trust & Clearing Corp, is a company that works with majority of the securities and investments in the United States, in regards to clearing and settlement services. There actions have an impact on most of the U.S Financial Markets.
Below is an example of how DTCC can impact brokerages, trading platforms and clearing houses:
“At times, clearing corporations may earn clearing fees by acting as a third-party to a trade. For example, a clearinghouse (like Apex) may receive cash from a buyer and securities or futures contracts from a seller. The clearing corporation then manages the exchange and collects a fee for this service. The size of the fee is dependent on the size of the transaction, the level of service required, and the type of instrument being traded. Investors who make several transactions in a day can generate significant fees. In the case of futures contracts specifically, clearing fees can accumulate for investors because long positions can spread the per-contract fee out over a longer period of time.”
GME, AMC, KOSS, and other stocks growing in popularity once the markets open in regular trading schedule time. It changed the requirements for the DTCC to process trades at a capitol requirement, Robinhood didn’t have. In result, they completed actions that changed the platform to steer investors away from wanting to invest in those companies.
10 The DTCC Increased Collateral Required for T+2 Trading of Securities to an Amount Clearing Houses Didn’t Have Capital and Didn’t Want To Execute To Prevent Melvin Capital Management From Bankruptcy.
According to an with the CEO of WeBull, Anthony Denier, whose company also uses Apex Clearing House, the DTCC increased collateral requirement for clearing houses from 2% to 100% collateral to guarantee trades would clear to prevent Melvin Capital Management from becoming bankrupt in their trade.
The actions that Robinhood took versus their competitors using the same clearing houses as them, impacted how they were perceived. By default of the relationships Robinhood has, the amount of corruption is visible to the most common retail investor.
Later today, Robinhood will have a chance to redeem itself in how it treats retailers in the next trading period. The government, the influencers, the celebrities and retail investors will be watching. As we all try to uncover the other underlining amounts of fraud in the financial markets.
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