They call this a "margin" account but FINRA has rules about how margin accounts work. Minimum maintenance is 25% for long shares, and minimum equity is $2000.
I could envision how Robinhood's margin practices and Robinhood Instant contributed greatly to the need to draw on credit lines and raise additional funds from investors.
I think we're talking past each other. I'm saying that, according to the rules, even if Robinhood had absolutely no margin buying whatsoever, they'd still have substantially the same collateral problem. They can't use customer funds for DTCC collateral.
I believe this is the correct understanding, with the minor explicit callout that every dollar RH had to use to cover pre-cleared ACH deposits was a dollar they couldn't use to put towards backing their DTCC collateral.
So in one way, the influx of new users and new inbound money could not have come at a worse time, even though I also believe it likely was rather inconsequential in comparison to the DTCC requirements.
> even if Robinhood had absolutely no margin buying whatsoever, they'd still have substantially the same collateral problem
They'd have a less concentrated position in GME, a smaller CNS long, and lower peak net settlement debits. All of those factors affect capital commitments. They also wouldn't have to commit their own capital for Robinhood Instant accounts with customer check/ACH deposits that haven't cleared. Currently, Robinhood Instant means that Robinhood uses up to $1k of its own funds per account to clear trades...not DTCC collateral, but rather just to pay for the trade.
In the absence of margin, Robinhood doesn't have a collateral problem in the sense of effecting transactions that may not clear. Rather, it has a liquidity problem. Big difference.
The risk to Robinhood from GME buying in margin accounts is that they would have a very large net long as a firm, and then one day the stock gaps down so quickly -- perhaps overnight -- that there is no time/opportunity to close out margined positions before they lose more than their accounts' total equity. That could leave Robinhood holding the bag on 75% of the loss assuming minimum maintenance margin.
That's why I don't believe margin to be a red herring. It directly and indirectly affects the amount of the required deposit and the clearing obligations of the firm, and also imposes a very large risk upon Robinhood in the event of a scenario where GME closes in the after-hours session at $300 on a Friday and then reopens at $0.40 on Monday morning because the company filed for bankruptcy (just an example). That scenario in turn reduces the likelihood that Robinhood can borrow from banks and investors to infuse itself with the cash required to keep its business running.
Someone else posted an article saying that additional collateral across all firms due to the r/WSB squeeze is a bit less than $8B according to a DTCC spokesman. Not sure how much of that is attributable to Robinhood. That sounds like a lot of money but it's really not, in the world of financial institutions -- especially in today's cash-happy low-rates environment. To put it in perspective, Melvin Cap got $2.75B overnight, from two people.
My own personal gripe about this whole thing is that the way Robinhood carried out its business was chiefly damaging to its own customers. I also believe they shouldn't be allowed to offer "Robinhood Instant" because it doesn't appear to line up with federal requirements for margin accounts.
https://robinhood.com/us/en/support/articles/deposit-money-i...
They call this a "margin" account but FINRA has rules about how margin accounts work. Minimum maintenance is 25% for long shares, and minimum equity is $2000.
https://www.finra.org/rules-guidance/rulebooks/finra-rules/4...
I could envision how Robinhood's margin practices and Robinhood Instant contributed greatly to the need to draw on credit lines and raise additional funds from investors.