-Early on (before the clap) I say that Citadel owns a stake in Robinhood. Citadel does NOT own a large stake in Robinhood. I was under this impression because I had recently read a Reddit post claiming so. As always, not everything we read on the internet is true (more on this falsehood and how it propagated here: https://www.ibtimes.sg/citadel-owns-robinhood-theory-claims-capital-firm-halted-trading-platform-it-owns-hedge-fund-55226). Citadel did bailout Melvin Capital. Most importantly, Citadel is Robinhood’s primary market maker; their primary source of shares for clients/users. More on the relationship between citadel and Robinhood here: https://www.bloomberg.com/news/articles/2021-01-31/the-citadel-link-what-ken-griffin-has-to-do-with-gamestop
-when defining hedge funds, I casually say that one can invest in a hedge fund through a retirement account. This is false. Hedge funds are not typically available to small investors through retirement accounts, but rather are marketed exclusively to a relatively small group of large investors. John was very correct to emphasize the exclusive “boutique” nature of hedge funds. Other aspects of hedge funds worth mentioning are that they usually traded very liquid assets.
-I say that u/DeepFuckingValue worked as a financial advisor. This is at least imprecise. u/DeepFuckingValue did not work as a financial advisor during his initial investment in GME, but did work as a “financial well-being coach”.
-I described margin calls and clearing house correctly, but did incorrectly say at some point that one can meet margin requirements by buying stock. To cover margin, one need not buy back shares. One can simply put money in one’s brokerage account in order to cover margin. One buys back shares and returns them to the lender only when one closes out the short position entirely.
-61:22. I say that trades sometimes settle two or three days after they are made. This is less precise than it should have been. Trades settle with clearing houses two days after trades are executed, this is commonly called t+2 settlement. Robinhood’s CEO has talked about having the Depository Trust Clearing Corporation (DTCC) move to real-time settlement, and industry changes as well as regulations to that effect have been discussed in the aftermath of GME’s wild ride.
-Another key regulatory point I failed to mention involved transparency of hedge funds. Reporting requirements for hedge funds are notoriously limited. Some funds provide extensive information about their trades and positions, investors, and manager compensation, but they are not legally required to and many keep these things secret. Some commentators have discussed new regulations that would require such disclosures. This podcast is a good deep dive on the regulatory questions: https://podcasts.apple.com/us/podcast/the-finreg-pod/id1483871507?i=1000508471065
-At certain points throughout the pod, I incorrectly characterize “payment for order flow”. You and John describe payment for order flow correctly, I sometimes do not. Payment for order flow is the practice where market makers pay brokers to process their trades in order to receive real time order data of the broker’s clients. Market makers can use this data to enhance their own trading strategies and risk management. You’re both right that all the typical privacy and surveillance-capitalism concerns apply, but payment for order flow has enabled brokers to eliminate commissions and make it easier for retail investors to trade.
-at the end I say something like, “I find it hard to look at all these events and say they mean that there is something deep and fundamentally broken about the system.” I wish I had clarified this. There is currently a distressing decoupling between stock market prices and real economic activity, and the GameStop saga is one example of that, but I see it as just a symptom. Numerous trends far upstream of the particulars of the GameStop story do concern me. These include unprecedented levels and pace of central bank money creation and asset purchases, especially purchases of corporate bonds and other non-government securities (btw, those purchases managed by Blackrock), along with government stimulus. Countless financial journalists have been sounding the alarm that government policies have encouraged an “everything bubble”, and if there’s something to be deeply concerned about in the GameStop story, it’s the possibility that the hysteria and irrational exuberance surrounding WallStreetBets are a symptom of a broader bubble.
-another point that I should have made was that many other online trading platforms and brokers suspended trading for GME AMC and other stocks discussed on WSB. These included WeBull, Cash App, and TD Ameritrade. The liquidity problem affecting clearing houses and brokers was not isolated to Robinhood, though most of the GME retail trading frenzy seems to have been done by Robinhood users, along with large investors not on Robinhood.
Here are some of those articles:
On relevant SEC regulations:
On Central bank monetary policy:
Margin debt (money borrowed to pay for stock purchases) has risen dramatically:
Matt Levine’s now prophetic article on the short squeeze Reddit situation:
A concise take I pretty much totally agree with:
On clearing houses and market infrastructure:
Specifically about the DTCC:
What’s an option?:
What’s short selling?: