Readers will recall the fuss and bother a few weeks ago, when a Reddit investing sub-forum used Robinhood and other low- or no-cost brokers to launch a short-selling campaign targeting certain hedge funds. To the fury of those investors, Robinhood restricted their ability to trade, and in some cases sold their orders on the open market without their permission, thereby helping the hedge funds keep their heads above water. Legal action has already resulted, and is sure to be in the courts for months, perhaps years to come.
Tyler Durden sums up what Robinhood did – and, more importantly, why it did it. Yet again, we see that if a service or product is free, it simply means that you, the user, are the real product. You’re being bought and sold.
Frankly, we’ve had it with the constant stream of lies from Robinhood and neverending bull**** from the company’s CEO, Vlad Tenev.
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What he is referring to, of course, is Robinhood’s outrageous decision to restrict the buying of 13 heavily shorted stocks on Jan 28 that had been driven to record highs, including GameStop, whose shares had surged more than 1,600%.
Tenev said the restrictions were necessary due to a large increase in collateral/deposit requirements by the DTCC, but that was not spelled out in automated emails sent to Robinhood customers early on Jan. 28.
And then he decided to pull the oldest trick and deflect attention from his own mistakes by blaming “conspiracy theories.”
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What Tenev did not say, or explain, is why his company – which is merely a client-facing front of Citadel, which buys the bulk of Robinhood’s orderflow to use it perfectly legally in any way it sees fit – was so massively undercapitalized that the DTCC required several billion more in collateral to protect Robinhood’s own investors against the company’s predatory ways of seeking to capitalize on the gamification of investing making it nothing more (or less) than a trivial pursuit to millions of GenZ and millennial investors, a point which Michael Burry made so vividly.
Incidentally we know why Tenev did not mention it: it’s because Robinhood’s back office is a shambles of a shoestring operation, one which never anticipated either such a surge in trading not a multi-billion collateral requirement; had Robinhood been a true brokerage instead of pretending to be one, and run merely to open as many retail accounts as it could in the shortest amount of time, thus generating the most profit in the quickest amount of time to allow its sponsors a quick and profitable exit, it would actually have been on top of this.
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Which brings us to a totally separate topic, and one which Tenev will one way or another have to address: the fact that Robinhood is a de facto subsidiary of Citadel, whose entire business model is to sell retail orders to a handful of HFT market makers first and foremost… Citadel. In doing so the only ones who benefited from the surge in retail trading are Robinhood itself, by pocketing millions more from selling orderflow to Citadel, Virtu, Two Sigma, Wolverine and other HFT frontrunning “market-making” venues, as well as Citadel which made billions by having an advance look at the biggest surge in retail stock and option orders flow in history, and being able to trade ahead of and around it.
And no, it’s not a conspiracy theory Vladimir – it is the stone cold truth, as Jeffrey Gundlach suggested last week when he said “Robin Hood (sic) should be forced to change its name to Hood Robbin’. I grow so weary of lies through nomenclature, which are ubiquitous these days” adding “To be clear, the name change would reflect Robinhood robbing the little guy, nothing else.”
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Would it therefore be farfetched to say that Robinhood is nothing more than a client-facing subsidiary of Citadel, one which pretends to offer free trades to tens of millions of young, naive traders, but in reality merely allows Citadel Securities to trade ahead and/or against this orderflow for which it paid over $300 million… and to generate record revenues of $6.7 billion!
Probably not, but we won’t have a definitive answer until we find out just how much profit Citadel made from buying all this critical data, which gives it an early glimpse into not only each discrete individual trade but also a sense of which way the retail horde is moving, critical and extremely valuable data which until last August was public and available to all (with a slight delay) courtesy of Robintrack, and which last August was inexplicably halted.
There’s more at the link.
As always, the old adage “Follow the money” reveals who’s really profiting – and it wasn’t the individual investors using Robinhood’s services.