Dear Media,

What’s happening with RobinHood?

A quick primer.

This is a “plumbing” issue. It is esoteric, even for those on Wall Street.

A very long thread on how the toilet is clogged.🚽🧻🪠

Read on
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First: RH was not the only brokerage to restrict buying in $GME et al. Much of the below applies to many brokerages. I'm going to use "RH" in my writing for simplicity and because it's the most prominent, but it's not fair to call this a RobinHood issue, per se.

The restrictions impacted retail AND institutional players – many institutional prime brokers ("PBs") did the same thing to their hedge fund clients.

Why?

Surely PBs can't be trying to punish their own clients just to benefit Citadel. There must be something else happening...

Let's talk plumbing. 🪠🪠

Most RH clients (& all HFs) use “margin” accounts, not “cash” accounts. RH's sign up process nudges new customers into margin accounts by default.

Whether RH should do that is worthy of discussion another day.

This is a story of lending and capital.

Margin accounts are Wall Street's way of denoting lending accounts.

Practically speaking, in margin accounts, the client does NOT own *any* securities. Rather, margin account holders "own" a promise from their broker.

Yay.