Why, when any vaguely competent IT person can spin up a blockchain that makes trades irreversible in 15 seconds, are we still settling stock trades two days later?
Why, when any vaguely competent IT person can spin up a blockchain that makes trades irreversible in 15 seconds, are we still settling stock trades two days later?
We’re talking about a difference of a few orders of magnitude in transactional volume — never mind the energy required to secure a blockchain version of the world’s financial system.
We’re talking about a difference of a few orders of magnitude in transactional volume — never mind the energy required to secure a blockchain version of the world’s financial system.
I don't think it would take a lot of energy to secure; you would probably just make the exchanges sign and countersign the blocks, instead of running proof of work or something. But the...
I don't think it would take a lot of energy to secure; you would probably just make the exchanges sign and countersign the blocks, instead of running proof of work or something. But the settle-for-difference model does indeed let you do higher throughput; only the aggregate information needs to be agreed upon with the upstream exchange.
So git for financial institutions? I'm not sure what that solves? You're either ensuring transactions are verified with proof of work or you're verifying them yourself which is where the T+2 days...
you would probably just make the exchanges sign and countersign the blocks, instead of running proof of work or something.
So git for financial institutions? I'm not sure what that solves? You're either ensuring transactions are verified with proof of work or you're verifying them yourself which is where the T+2 days comes in.
If stock trades were impossible to cancel manually then you wouldn't need a blockchain to make them near-instant. Stock exchanges already use databases. So do many cryptocurrency exchanges, by the...
If stock trades were impossible to cancel manually then you wouldn't need a blockchain to make them near-instant. Stock exchanges already use databases.
So do many cryptocurrency exchanges, by the way. If you're trading Bitcoin for Etherium, the trade itself is typically not happening on a blockchain. I think there are a few distributed exchanges running on Etherium though?
Yea, there's a bunch of reasons why a blockchain seems like a poor solution. Not only is there no need for distributed trust but as you mentioned earlier -- mutability seems to be a feature of the...
If stock trades were impossible to cancel manually then you wouldn't need a blockchain to make them near-instant. Stock exchanges already use databases.
Yea, there's a bunch of reasons why a blockchain seems like a poor solution. Not only is there no need for distributed trust but as you mentioned earlier -- mutability seems to be a feature of the T+2 system.
Ngl I'm waiting for it to drop off of the front page. This is probably the last I'll write on the topic - I have no desire to be seen as sticking my own neck out for Robinhood or hedge funds when...
Ngl I'm waiting for it to drop off of the front page. This is probably the last I'll write on the topic - I have no desire to be seen as sticking my own neck out for Robinhood or hedge funds when I don't care about either.
I also got permanently banned from /r/technology for some reason? Wat?
That sucks to hear you won't be writing any more on the topic, since IMO you have been a voice of reason amid this turmoil, and I have greatly appreciated reading your insights on this rather...
That sucks to hear you won't be writing any more on the topic, since IMO you have been a voice of reason amid this turmoil, and I have greatly appreciated reading your insights on this rather complicated, confusing, and unfortunately misinformation riddled topic over the last few days. So thanks for that!
p.s. I totally don't blame you for not wanting to keep sticking your neck out though... way too many people on social media have seemingly lost their ability to remain calm and think rationally (even here on Tildes) over the last few days over all this BS. :(
Like the other explanations I've seen so far, this only addresses the buying side of the equation. A buyer has two days to come up with the cash for a transaction and there's a risk involved there...
Like the other explanations I've seen so far, this only addresses the buying side of the equation. A buyer has two days to come up with the cash for a transaction and there's a risk involved there that needs to be covered by a deposit, I get that.
But is there any risk that the seller won't be able to pony up the stock by then? Are the sellers in these transactions required to own the stocks they sell? In which case, there would be no need for a deposit on their end?
Because if so -- if it's an asymmetry in the mechanics of buying and selling that are responsible for RobinHood's actions, rather than an asymmetry in the number of buys and sells -- I'm not sure why you feel the need to make this assumption:
I'd assume on Robinhood, a broker targeted at retail investors, it'd be heavily imbalanced towards buy trades.
Just trying to understand this side of things better. One of the things I took away from Matt Levine's article was that retail investors as a whole were selling slightly more than buying throughout the week, so I was a little surprised to read this and then see that article referenced later on.
Also, minor nitpick: there a couple places where you use the word "legally" to refer to RH's obligation here. But isn't it a regulatory obligation? I.e. the deposit requirements come from a regulation set by the SEC, not a law passed by congress?
Mainly because that's what the issue was in this specific case. But yes, there is also the other side of the coin. You may notice that it's the 2d 99% VaR. For the stock-side, it's also cash...
Like the other explanations I've seen so far, this only addresses the buying side of the equation
Mainly because that's what the issue was in this specific case. But yes, there is also the other side of the coin. You may notice that it's the 2d 99% VaR.
For the stock-side, it's also cash deposits, though. In that case, if you don't have the necessary stocks on settlement day, they'll use your deposit to purchase enough stock to make up the difference for the transaction (+ parts of every elses deposit if it's not enough, then NTCC money).
However, if it was a sell-side imbalance then they would have been forced to disable sells.
there a couple places where you use the word "legally" to refer to RH's obligation here. But isn't it a regulatory obligation?
It was a regulatory body created by 803(e)(1) of Title VIII of Dodd-Frank, with one of its responsibilities to fulfill 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4(n)(1)(i) of US law, which aim to limit the risk of clearing firms failing.
So the specific number and equation comes from the SEC, but they are doing so in interpretation of a law.
A related question about GME I'll throw in here: What's stopping GME from issuing new equity? If this drags on it seems like a straightforward decision? I guess they probably do not want to issue...
A related question about GME I'll throw in here:
What's stopping GME from issuing new equity? If this drags on it seems like a straightforward decision? I guess they probably do not want to issue too much equity and cause everyone to panic sell but their window to capitalize on this is finite and presumably they do want to capitalize on it.
I think they're probably afraid of SEC lashing at them for it. They did publish a notice saying they'll "protect retail investors", and GME issuing stock when, let's be honest, they know it'll be...
I think they're probably afraid of SEC lashing at them for it. They did publish a notice saying they'll "protect retail investors", and GME issuing stock when, let's be honest, they know it'll be retail investors holding the bag is not a good look.
AMC actually did do this in effect, though. Before all this, they took out a 600m loan from Silverlake that was had a debt-equity swap clause. Apparently Silverlake took the swap and promptly sold their AMC to the hungry market.
So now AMC has no debt - their 600m financing turned out to be "free". A small part of me is happy, since I like going to movies and would like to continue after the pandemic is over.
The "not a good look" reason makes sense. Still, I wonder what % of shares are held directly by retail investors vs tied up in pension funds or ETFs etc. It seems to me that by not raising capital...
The "not a good look" reason makes sense. Still, I wonder what % of shares are held directly by retail investors vs tied up in pension funds or ETFs etc. It seems to me that by not raising capital to try and make the $4 share into a $10 share you're hurting investors in pension funds and etc. who may not be able to sell -- they're not considered retail investors but are nonetheless 'little guys' (at least as much as retail investors) all the same.
They did publish a notice saying they'll "protect retail investors"
Hertz tried to do this a while back: they were going bankrupt but the stock had been bid up by randos. They canceled the plan, IIRC, after the SEC made vague investigatory noises.
Hertz tried to do this a while back: they were going bankrupt but the stock had been bid up by randos. They canceled the plan, IIRC, after the SEC made vague investigatory noises.
Why, when any vaguely competent IT person can spin up a blockchain that makes trades irreversible in 15 seconds, are we still settling stock trades two days later?
We’re talking about a difference of a few orders of magnitude in transactional volume — never mind the energy required to secure a blockchain version of the world’s financial system.
I don't think it would take a lot of energy to secure; you would probably just make the exchanges sign and countersign the blocks, instead of running proof of work or something. But the settle-for-difference model does indeed let you do higher throughput; only the aggregate information needs to be agreed upon with the upstream exchange.
So git for financial institutions? I'm not sure what that solves? You're either ensuring transactions are verified with proof of work or you're verifying them yourself which is where the T+2 days comes in.
If stock trades were impossible to cancel manually then you wouldn't need a blockchain to make them near-instant. Stock exchanges already use databases.
So do many cryptocurrency exchanges, by the way. If you're trading Bitcoin for Etherium, the trade itself is typically not happening on a blockchain. I think there are a few distributed exchanges running on Etherium though?
Yea, there's a bunch of reasons why a blockchain seems like a poor solution. Not only is there no need for distributed trust but as you mentioned earlier -- mutability seems to be a feature of the T+2 system.
Apparently this is so there is time to make corrections before the trade becomes irreversible.
Wow, this article got posted on Hacker News and a lot of confident idiots started posting.
Ngl I'm waiting for it to drop off of the front page. This is probably the last I'll write on the topic - I have no desire to be seen as sticking my own neck out for Robinhood or hedge funds when I don't care about either.
I also got permanently banned from /r/technology for some reason? Wat?
That sucks to hear you won't be writing any more on the topic, since IMO you have been a voice of reason amid this turmoil, and I have greatly appreciated reading your insights on this rather complicated, confusing, and unfortunately misinformation riddled topic over the last few days. So thanks for that!
p.s. I totally don't blame you for not wanting to keep sticking your neck out though... way too many people on social media have seemingly lost their ability to remain calm and think rationally (even here on Tildes) over the last few days over all this BS. :(
Like the other explanations I've seen so far, this only addresses the buying side of the equation. A buyer has two days to come up with the cash for a transaction and there's a risk involved there that needs to be covered by a deposit, I get that.
But is there any risk that the seller won't be able to pony up the stock by then? Are the sellers in these transactions required to own the stocks they sell? In which case, there would be no need for a deposit on their end?
Because if so -- if it's an asymmetry in the mechanics of buying and selling that are responsible for RobinHood's actions, rather than an asymmetry in the number of buys and sells -- I'm not sure why you feel the need to make this assumption:
Just trying to understand this side of things better. One of the things I took away from Matt Levine's article was that retail investors as a whole were selling slightly more than buying throughout the week, so I was a little surprised to read this and then see that article referenced later on.
Also, minor nitpick: there a couple places where you use the word "legally" to refer to RH's obligation here. But isn't it a regulatory obligation? I.e. the deposit requirements come from a regulation set by the SEC, not a law passed by congress?
Mainly because that's what the issue was in this specific case. But yes, there is also the other side of the coin. You may notice that it's the 2d 99% VaR.
For the stock-side, it's also cash deposits, though. In that case, if you don't have the necessary stocks on settlement day, they'll use your deposit to purchase enough stock to make up the difference for the transaction (+ parts of every elses deposit if it's not enough, then NTCC money).
However, if it was a sell-side imbalance then they would have been forced to disable sells.
It was a regulatory body created by 803(e)(1) of Title VIII of Dodd-Frank, with one of its responsibilities to fulfill 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b-4(n)(1)(i) of US law, which aim to limit the risk of clearing firms failing.
So the specific number and equation comes from the SEC, but they are doing so in interpretation of a law.
Makes sense. Thanks for the explanation, I appreciate it!
A related question about GME I'll throw in here:
What's stopping GME from issuing new equity? If this drags on it seems like a straightforward decision? I guess they probably do not want to issue too much equity and cause everyone to panic sell but their window to capitalize on this is finite and presumably they do want to capitalize on it.
I think they're probably afraid of SEC lashing at them for it. They did publish a notice saying they'll "protect retail investors", and GME issuing stock when, let's be honest, they know it'll be retail investors holding the bag is not a good look.
AMC actually did do this in effect, though. Before all this, they took out a 600m loan from Silverlake that was had a debt-equity swap clause. Apparently Silverlake took the swap and promptly sold their AMC to the hungry market.
So now AMC has no debt - their 600m financing turned out to be "free". A small part of me is happy, since I like going to movies and would like to continue after the pandemic is over.
The "not a good look" reason makes sense. Still, I wonder what % of shares are held directly by retail investors vs tied up in pension funds or ETFs etc. It seems to me that by not raising capital to try and make the $4 share into a $10 share you're hurting investors in pension funds and etc. who may not be able to sell -- they're not considered retail investors but are nonetheless 'little guys' (at least as much as retail investors) all the same.
Do you have a link to this?
Hertz tried to do this a while back: they were going bankrupt but the stock had been bid up by randos. They canceled the plan, IIRC, after the SEC made vague investigatory noises.
This was the statement