Back

Robinhood and Didi to Kick Off a Hot IPO Summer

48 points4 yearswsj.com
elevenoh4 years ago

FYI for those interested: you can get exposure to Robinhood's post-IPO market cap outcome right now via FTX.com pre-IPO futures.

This is something I'm pleasantly surprised by in 2021: Deposit crypto. Transact pre-ipo futures, stock futures, commodities like lumber etc. 24/7 with solid-liquidity.

JumpCrisscross4 years ago

> you can get exposure to Robinhood's post-IPO market cap

Ish. Creating derivatives around private assets is hard. Anyone who bought FTX swaps in e.g. Coinbase pre-IPO lost money on bad pricing alone. It’s for these reasons that their product is not compliant with decades-old U.S. securities law. Unfortunately, it’s free to roam in younger jurisdictions.

Disclaimer: I work in the private markets. I used to make markets in derivatives. I haven’t seen a single solution, to date, that competently combines the two.

elevenoh4 years ago

>Anyone who bought FTX swaps in e.g. Coinbase pre-IPO lost money on bad pricing alone.

Not sure what you're talking about here, I bought it & I certainly didn't...

gruez4 years ago

>Anyone who bought FTX swaps in e.g. Coinbase pre-IPO lost money on bad pricing alone.

Is this when they're buying, or when they're selling?

JumpCrisscross4 years ago

> Is this when they're buying, or when they're selling?

FTX isn't a trading venue for shares. They create tokens representing the shares [1].

When they sell a token representing Coinbase stock at 3x what the stock is trading on private stock venues, and a bit more compared with where it IPO'd, that gain isn't necessarily going to other FTX customers. It's going to their captive broker-dealer, a German-regulated (i.e. virtually unregulated) entity.

Given Coinbase shareholders weren't allowed to transfer shares on unapproved platforms, there were zero authorized Coinbase sellers on FTX. The winnings went to the house.

[1] https://help.ftx.com/hc/en-us/articles/360051229472-Tokenize...

fnord774 years ago

there's no way to bet against freshly issued IPOs, right?

I think for both shorting puts, there's a lockout period after the stock is issued. And limited inventory for borrowing.

Or has that changed?

I see almost all recent high-flying IPOs as overly inflated investor cashouts. Steve Blank had a post about this...

quickthrowman4 years ago

You could do an OTC swap with Goldman Sachs, or just wait a week for the market makers to open up the option chains.

Once the chain is open, you can sell as many puts as your heart desires (or as many as your broker will let you) FYI, shorting puts is long delta, so you’d want the price to go up if you sold puts. Long puts and short calls are negative delta (short)

fnord774 years ago

sorry I meant "shorting or puts (buying)"

poooogles4 years ago

>there's no way to bet against freshly issued IPOs, right?

Sell call options? Buy puts?

enlyth4 years ago

Options are not available from day one on IPOs, usually it takes at least a few weeks for them to get listed, although the minimum delay is three days

np_tedious4 years ago

This is generally unavailable until 1 day after IPO.

Traster4 years ago

These valuations are crazy - meaning one of two things are going to happen in the mid-term. Either we see inflation outside of asset prices (wage rises, increased consumer spending) and the revenue of these companies rise to justify the valuations, or we don't see that inflation and these stock prices slide since they can't justify their values. Now I'm not an economist - so maybe someone can help me out here. If the market slides because of lack of already priced in inflation, is that deflationary? And therefore could it bethat the asset price inflation we've seen recently could be reversed simply by a lack of retail inflation causing stock prices to drop therefore destroying asset price inflation?

Clewza3134 years ago

Didi is the Chinese Uber, and Uber's market cap as I write this is $90B, so on the face of it $70B for a fast-growing market on track to be several times larger than the US doesn't seem crazy.

Of course, that's assuming Uber's valuation is sane, which is not a bet I'd personally be willing to take.

pram4 years ago

1) A market correction is deflationary pretty much by definition 2) Inflation is a lagging indicator. The obvious expectation months ago would have been economic activity increasing after COVID 3) Valuation is often disconnected from revenue or anything else you'd consider rational, and it has nothing to do with inflation. An equity is its own thing, not a perfect indicator of economic reality

randomsearch4 years ago

only know a little about economics but it seems very unlikely inflationary would drive up stocks more than it's driving up prices across the board. even if it were, the (subjective) large over-valuation of stocks wouldn't really be explain by an increase in money supply.

When the stock market collapses, it probably won't move inflation directly rather the collapse in demand across the economy will. second order effects as credit is no longer available due to banks panicking and govts intervening...

quickthrowman4 years ago

> These valuations are crazy

To whom? 0% interest and the Fed put have a massive impact on valuations, particularly growth stocks.

Traster4 years ago

To people who existed in 2020. Let's take the example someone else mentioned of Uber. Uber is worth close to 50% more than it was worth at the beginning of 2020. This is what I mean by talking about the macro effects, as we get back to relative normal, what happens to these valuations? Is it a real reflection of inflation? Maybe, seems unlikely.

nickpp4 years ago

This flurry of IPOs and acquisitions kinda' remind me of the 1999 - 2000 times. But maybe I am too old and jaded...

neonate4 years ago
frankbreetz4 years ago
rataata_jr4 years ago

I wish I could downvote.

flefto4 years ago

Just a reminder that robinhood prevented people buying certain stocks while allowing them to sell, causing many people to lose money, but supporting the short selling hedge funds, whilst claiming to be “investment for the people”.

Possibly they are rushing to IPO before facing court.

I would neither buy shares IN Robinhood nor would I buy shares using a Robinhood account.

vkou4 years ago

Just a reminder that Robinhood didn't prevent this. Automatic increases to clearing house collateral requirements prevented this. If Robinhood allowed those trades to go through, they'd have been cut off from the clearing houses, and none of their customers would have been able to perform any trades.

Unfortunately, due to the low level of public understanding of how stock trades actually settle, the conspiracy narrative you're presenting was the one that made it into the public consciousness.

There's no such thing as an instant stock trade. Retail brokerages are a leaky abstraction over what is actually an incredibly messy settlement layer. This abstraction holds when everything is normal, and leaks when stock prices become too volatile.

tl4 years ago

Robinhood implemented restrictions before any other platform though they were not the only ones to do so, held restrictions longer than any of their competitors, used restrictions (sell only) in a way that was unique to Robinhood and falsely made public claims (later to be retracted) that they had chosen to do some or all of this "for the public good."

I would not trust them with a single dollar.

vkou4 years ago

That's because Robinhood had the bulk of the retail mania, and were thus the most affected brokerage.

Other retail brokerages, that were less popular with the WSB crowd never even stopped purchases of GME, because GME is was a small fraction of their trade volume - and thus, their collateral obligations did not grow much.

You are correct for not wanting to use them to trade, for two reasons.

1. If you are actively trading, you are almost certainly throwing away money. Don't actively trade. Just buy an index fund and forget about it.

2. If you are actively trading, and you are a serious, informed individual (which already excludes the overwhelming majority of people who were buying GME), and you want 24/7 uptime, you shouldn't use a discount zero-fee brokerage that's popular on WSB. They won't be able to guarantee that uptime when WSB decides to take one side of a huge trade.

Miner49er4 years ago

> Automatic increases to clearing house collateral requirements prevented this.

I don't think they were automatic? They were raised way more then what was standard.

flefto4 years ago

If so, why doesn’t this happen all the time?

In fact, when has it EVER happened before, or since?

If it was normal wouldn’t there regularly be stocks that can’t be bought but can be sold?

vkou4 years ago

Because stocks valuations don't jump by 2000%, with volumes up 3000% 'all the time'.

And when they do, they aren't solely driven by retail investor mania pig-piling the exact same brokerage.

And, uh, particular brokerages have stopped uni-directional trades for volatile stocks in the past, for the exact same reason. You may notice that no retail brokerage makes any guarantees to its customers that they will be able to trade anything, anytime they want. They don't carry a collateral that can meet any such guarantee.

rokobobo4 years ago

I’m not a fan of Robinhood, but everything that vkou has been saying is true.

My understanding is that Robinhood is self-clearing, not that Citadel is its prime brokerage.

The clearing margin requirement came from NSCC. Clearing margins CANNOT be satisfied using client funds. So it’s Robinhood’s own capital—and whatever credit lines they’ve negotiated—that would need to meet those requirements.

If I deposit 100k into Robinhood and keep it there as cash for 2 years, then one day I plunk all of it into GME, then until all my trades settle two days later, Robinhood will have increased clearing margin requirements based on the VaR of my unsettled trades. (Unless, my trade offsets someone else’s from within Robinhood, in which case I believe RH’s margin would reduce—but I’m not sure about this part.)

And if one day after my trades, GME’s stock goes up 10x, the VaR goes up roughly 10x as well. Even though I would have a claim to a lot higher value in my account once everything is settled, until the trades are settled, it’s a major cash crunch for RH.

The fact of the matter is that RH was not under-capitalized or have disproportionately small credit lines as a portion of their AUM, as compared to other brokerages. It’s just that their users were the ones that acted in a most coordinated way on a stock whose VaR was going through the roof.

jw12244 years ago

No, Robinhood’s collateral requirements were increased by their clearing house only because their clearing house were on the hook to lose billions to retail investors during January’s short squeezes.

The same clearing house used by Robinhood were the same people illegally naked-shorting GME.

This is collusion, plain and simple. No part of this is representative of the “free” market.

vkou4 years ago

Nonsense. Clearing houses don't lose anything during a short squeeze, as long as funds committed to a trade actually clear. They aren't the ones on the hook for a short exploding.

They raise their collateral requirements during a period of high volatility. As it turns out, when you run a zero-fee brokerage, you don't just have a couple of extra billions of dollars lying around that you can put up as collateral on a moment's notice.

> illegally naked-shorting GME.

You don't understand how shorts work.

You don't need anyone doing a naked short for a stock to exceed 100% short. This has been explained hundreds of times, both here, and on Reddit.

+4
jw12244 years ago
Traster4 years ago

Is there any actual evidence this is true beyond just internet accusations?

ruairispain4 years ago

There is evidence, was involved in it. Someone else took a screenshot. https://i.redd.it/86xuz0p7w2e61.jpg

RH is a front for organised crime, selling data to Citadel so the can front run retailers trades. Hope to see Senate action on it at some point.

manigandham4 years ago

Front-running is already illegal and nobody cares about doing it for a bunch of small retail traders. Also buying stock requires funds to clear for 2 days while selling doesn't, that's why buying was restricted but selling wasn't.

Whether Robinhood should have had more capital or how those margin requirements were handled is a serious question but that's entirely separate than these accusations which seem to be made by people who have no idea how the system actually works.

Traster4 years ago

That's not evidence that RH was:

> supporting the short selling hedge funds

Just to be clear: Robinhood claims that they prevented buying certain stocks because of increase collateral requirements by DTCC due to high volatility. Do you have any evidence that's untrue. Let's establish that before we move on to the claim that Citadel front-runs retail flow.

+1
Miner49er4 years ago
PaywallBuster4 years ago

Merely speculation that that was done to favor their partner other than something else.

+3
imdsm4 years ago
jw12244 years ago

This is very important to know.

Robinhood actively colluded with their hedge fund owners, by blocking buy orders — but not sell orders — under the guise of “increased margin requirements”.

In fact, those margin requirements were being set by Robinhood’s prime broker and investor, Citadel Securities — who were set to lose billions if retail were allowed to keep buying.

jasode4 years ago

>under the guise of “increased margin requirements”.

>In fact, those margin requirements were being set by Robinhood’s prime broker and investor, Citadel Securities

To clarify, you're saying NSCC(DTCC) National Securities Clearing Corporation was instructed by Citadel to increase margin requirements? Example story: https://www.cnn.com/2021/02/01/investing/robinhood-gamestop-...

Regardless of whether NSCC acted independently or under secret pressure from Citadel, what could Robinhood have done differently? If they didn't have the billions in the bank to control their destiny, what other options do they have? If the clearing house cuts off Robinhood's trade settlement, what are the realistic alternatives?

mandmandam4 years ago

>Regardless of whether NSCC acted independently or under secret pressure from Citadel, what could Robinhood have done differently? If they didn't have the billions in the bank to control their destiny, what other options do they have? If the clearing house cuts off Robinhood's trade settlement, what are the realistic alternatives?

What is integrity?

flefto4 years ago

Robinhood’s own customers got tossed to the dogs because Citadel told the CEO of Robinhood to manipulate the market.

If you have a Robinhood account then you risk Robinhood making decision that lose you money so that the hedge funds make money.

codetrotter4 years ago

This definitely calls for that one four-panel image macro with drake saying no thanks in panel one to something in panel two, and approving in panel three to what’s in panel four.

You know the one right?

So then panel two: Buying meme-stocks

And panel four: Buying stonks in the platform that everyone is using to buy meme-stocks.

It’s too bad that I don’t actually have any money to buy Robinhood IPO though :^) :’)

mandmandam4 years ago

You must have missed the 420 memos where clearly bizarre fuckery around "meme stocks" was supported by Robinhood suspending trading of them, resulting in a mass migration from RH to Fidelity and others.

You probably shouldn't talk condescendingly about things you clearly are so behind on.

codetrotter4 years ago

> You probably shouldn't talk condescendingly about things you clearly are so behind on.

Which part of my comment seemed condescending to you? For the record, no part of it was intended to be.

mandmandam4 years ago

Fair enough - though I'd suggest you differentiate between meme stocks (those hyped on social media) and meme stocks that were targeted for destruction by SHFs and are now facing a multi-billion short squeeze. There's a lot of range between those two definitions.