Episode 7 of Season 3 of The Scoop was remotely filmed with The Block’s Frank Chaparro and Shane Swanson of Greenwich Associates.
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Stock markets have been trading at unprecedented levels over the past few days, fueled by retail activity linked to Wall Street Bets. Robinhood – which has become the key figure in this drama as the place through which much of the public’s visible trading took place – was a focal point of this background in the market after it succumbed to pressure from increased activity and the purchase of certain shares, such as GameStop, temporarily limited. and AMC.
In response, Robinhood came forward and linked his response to the underlying settlement infrastructure. Robinhood said in a blog post that the restrictions on trading are related to the rising requirement for the down payment. The firm later said that a move to real-time trading resolution would help address the problems facing not only Robinhood but also other brokers. Here is from the blog:
“The deposit requirement is designed to reduce risk, but last week’s wild market activity has shown that these requirements, coupled with an unnecessarily long settlement, can have unintended consequences that pose new risks.”
Shane Swanson of Greenwich Associates, a former market structure and former director of Citadel Securities, gives an exact account of what happened to the markets last week and why things stopped trading in a new episode of The Scoop podcast.
Here is Swanson:
“I like to use examples because I’m a simple man, and they seem to be examples. If I’m a broker and I have $ 10,000 capital, it’s not the exact numbers, but say it enables me to $ 100,000 in the market because I have some leverage. And I’ll let someone trade with me, and I’ll give them a margin, which means I’m going to borrow money and trade, and I’m exposed to borrowing risk. .And they trade up completely and they use all my $ 100,000 that I may expose myself to, once I reach that $ 100,000 I can no longer trade.I can not expose myself to more risk.the bucket of capital used up which I may now trade. ‘
Whatever happens next, Swanson told The Scoop that ‘it’s always difficult to go backwards at cost’, referring to the consequences of moving from T + 2 to a more immediate settlement process.
“It all depends on it. If the cost is bad enough to absorb commissions, it could come back. The move from T-plus 2 to T-plus 1 settlement will take over a long time horizon, I believe it would not be something be what ends up in the retail investors in terms of costs, ”Swanson explained.
A full summary of this conversation will be published next week. We hope you enjoy the episode.
© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.
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