The U.S. House Committee on Financial Services just published a press release stating Robinhood and Citadel Securities engaged in ‘blunt’ negotiations before the trading of ‘meme stocks’ occurred.
The press release states that talks regarding lowering PFOF (payment for order flow) rates happened just a night before trading restrictions.
The “GameStopped” report issued by the U.S. House Committee on Financial Services greatly details how the NSCC saved Robinhood from defaulting due to failing to meet collateral obligations.
This article is going to highlight key points relating to the ‘meme stock’ halts that occurred in late January of 2021.
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GameStopped Report – U.S. House Committee on Financial Services
On January 28th, 2021, Robinhood routed orders to six market makers for equities: Citadel Securities, G1 Execution Services, Morgan Stanley, Two Sigma Securities, Virtu, and Wolverine.
Citadel, Morgan Stanley, and Wolverine are short on AMC to this day.
The conversations between Robinhood and Citadel were tense as the two negotiated the price of PFOF rebate rates and price caps for AMC and GameStop.
Furthermore, Robinhood received a massive waiver of its deposit requirement from the DTCC.
And according to the report, without this waiver, Robinhood would have defaulted on its regulatory collateral obligations.
NSCC officials say the waiver was necessary to avoid systemic risk to the market.
They explained that the extraordinary spike in ‘meme stocks’ contributed to increased clearing fund requirements for several firms.
Brokers halted the buying of AMC, GameStop, and other tickers when short sellers began to close their short positions, causing share prices to skyrocket.
The halting occurred due to a lack of liquidity where certain brokers were unable to cover the minimum collateral requirements.
The DTCC waived a total of $9.7 billion of collateral deposit requirements on January 28, 2021.
David Inggs is Global Head of Operations at Citadel and is responsible for all products across asset servicing, billing, cash management, clearing, and has a board seat at the DTCC.
The conflict of interest has raised big concerns amongst the retail investor community online as Citadel has been a leading and one of the biggest short sellers in the stock market.
On January 28th, 2021, The DTCC waived $9.7 billion of collateral deposit, limiting institutional losses and limiting retail profits during the ‘meme stock’ frenzy.
The organization allowed several naked shares to flood the market prior to the massive jump in share prices only to help financial institutions in the end.
Citadel and Melvin Capital who shut down last year, lost billions during the event.
Melvin was crippled throughout 2022 from its severe losses in GameStop the year prior.
Had the DTCC not stepped in, the hedge fund would have closed that same year.
Retail Feels Cheated
Retail investors feel they were robbed when brokers took away the ‘buy’ button by restricting trading in AMC, GameStop, and other ‘meme stocks’.
The DTCC jumped in and saved Robinhood from defaulting, cut Citadel’s losses short, and prevented retail investors bets from reaching maximum potential.
No one has been held accountable for these actions primarily because the system is justifying the actions as saving the market from total collapse.
But the system stole from retail investors to save institutional investors.
Regulators intervened to save institutions while they capped retail investor gains.
Still, hedge funds lost billions of dollars during the process.
GameStop broke Melvin Capital.
The hedge fund was not able to recover from its massive losses and has now shut down.
But Citadel nor Robinhood have faced any severe consequences that money can’t buy them out from.
Retail investors are now looking at our government and regulators as complicit to fraud and market manipulation.
What are your thoughts on the incidents that occurred during this time?
Leave a comment down below.