These Are The Shadowy New York Financial Institutions That Forced Robinhood To Restrict Trading In Certain Stocks

Have you ever heard of the Depository Trust & Clearing Corporation?  What about Cede and Company?  If those names are foreign to you, then you don’t really understand how the core of our financial system really works.  A lot of people are blaming Robinhood CEO Vlad Tenev and the heads of other major trading platforms for the stock trading restrictions that we witnessed last week, but it was actually the DTCC that suddenly jacked up deposit requirements ten-fold.  Robinhood and other trading platforms were put in a vise-like grip, and they had no choice but to act.  Someone needs to investigate how these decisions were made at the DTCC, and if laws were broken those that were responsible for the decisions need to go to prison.

We are being told that retail traders needed to be brought under control “for their own good”, but it was the reckless short selling of the big hedge funds that actually set the stage of last week’s chaos.

Why doesn’t anyone ever talk about restricting their exceedingly foolish trading strategies?

Thanks to relentless buying by “the Reddit Army”, several major hedge funds got absolutely slaughtered last week, and that group included Melvin Capital…

Melvin Capital, a premier Wall Street hedge fund entangled in the frenzy over GameStop (GME), lost 53% in January, a source familiar with the matter told CNN Business.

Melvin, a major short-seller of GameStop, bet that the company’s shares would drop. But, on January 11, GameStop announced new board members who could help it with digital sales. That set off a fury on Reddit, namely subreddit WallStreetBets, which catapulted GameStop’s stock more than 1,600%.

Of course the small fish are not supposed to beat up the big fish like that, and the billionaires at the big hedge funds undoubtedly reached out to their powerful friends for help.

There had been speculation that the big hedge funds leaned on Robinhood CEO Vlad Tenev and the heads of other large trading platforms directly, but the truth is more complicated.

It turns out that the pressure on Robinhood and other major trading platforms came from the clearinghouse level.  The following comes from a piece in USA Today that was authored by Vlad Tenev himself…

In a matter of days, our clearinghouse-mandated deposit requirements related to stocks increased ten-fold. These deposits are the collateral we post to ensure our access to clearinghouse services on behalf of our customers. They are what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on. As we noted in a blog on Friday, it was not because we wanted to stop people from buying these or any stocks — we built Robinhood to provide access to investing for all. And it certainly wasn’t because we were trying to help hedge funds.

Tenev didn’t mention it by name, but the company that clears almost all of Robinhood’s trades is the Depository Trust & Clearing Corporation.  If you are not familiar with the DTCC, here is some basic info from Wikipedia…

The Depository Trust & Clearing Corporation (DTCC) is an American post-trade financial services company providing clearing and settlement services to the financial markets. It performs the exchange of securities on behalf of buyers and sellers and functions as a central securities depository by providing central custody of securities.

DTCC was established in 1999 as a holding company to combine The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). User-owned and directed, it automates, centralizes, standardizes, and streamlines processes in the capital markets.[3] Through its subsidiaries, DTCC provides clearance, settlement, and information services for equities, corporate and municipal bonds, unit investment trusts, government and mortgage-backed securities, money market instruments, and over-the-counter derivatives. It also manages transactions between mutual funds and insurance carriers and their respective investors.

In 2011, DTCC settled the vast majority of securities transactions in the United States and close to $1.7 quadrillion[4][5][6] in value worldwide, making it by far the highest financial value processor in the world.[6] DTCC operates facilities in the New York metropolitan area, and at multiple locations in and outside the United States.

Theoretically, the DTCC is supposed to be a neutral participant in the markets.

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