Is Robinhood on the brink of collapse?

Second Sight Second Sight Analysis -- (Charlotte, NC 1/30/2021)  Dear traders, This ain't our first rodeo.

For those of us who have seen this before, Robinhood is making moves eerily similar to financial institutions about to fold, such as Refco, MF Global, PFG, and others.

Let's take a look at where we are at.

  1. Robinhood is limiting withdrawals.  - Why?

2. Robinhood is not allowing customers to access statements.  Why?

3. There is speculation which is just speculation that the $AMC volume figures are off, especially compared with different data points.  The question the thread was asking is - do you really own AMC shares?  The data sources are not important because data is anyway provided by brokers, exchanges, and other 3rd party sources so if there was an off data set it might not show up.  But some traders have noticed that there is more positions in Robinhood than it seems like there is volume in the stock, in other words -  the buying of the stock at Robinhood is not showing up in the volume figures. Why?

4. Robinhood raised $1 Billion from investors Thursday from existing investors.  Why?  According to the news, it was to 'meet regulatory requirements'

The reported drawdown matches reporting from yesterday indicating that Robinhood had accessed nine-figures of capital to ensure it had enough funds on hand to meet regulatory minimums and other requirements related to its users’ trading activity.

5. In the secondary market a fairly large block of Preferred shares is being offered at a high price "but will accept possibly 50% discount to the offer" which is a very unusual offer considering shares in the private market have risen from 22 to 65 in the last 60 days.

6. Robinhood is a 'self-clearing' broker-dealer, a change made in 2018.  Prior to that, they cleared through Apex Clearing, a 600 Billion USD powerhouse:

How Does Robinhood’s Launch of Clearing By Robinhood Affect My Taxes?
In 2018, we launched Clearing by Robinhood, our in-house clearing platform. Before this conversion, customers' trades were cleared by Apex Clearing. Since the conversion, customers' trades have been cleared by Robinhood Securities. For customers who had taxable events both before and after the launch of Clearing by Robinhood in November 2018, those events would have happened at two different clearing firms. As a result, those customers will be receiving Form 1099 from two different clearing firms for the 2020 tax year.

Apex IRS Form 1099: If you had a taxable event (for example, you sold equities, received a referral stock, or received dividends) in 2020 from our former clearing partner, Apex, you will receive a Form 1099 from them. Robinhood Securities IRS Form 1099: Customers who had taxable events last year will receive a 1099 from Robinhood Securities, our in-house clearing platform.

Robinhood Crypto IRS Form 1099: If you sold cryptocurrencies in 2020, you will receive a PDF of your 1099, as well as a CSV file of your crypto activity to assist with uploading your tax information to services like TurboTax.

7. Transfers to other broker-dealers are being delayed and/or blocked.  Why?

8. Robinhood is limiting purchasing these highly shorted stocks to just one share.  Why?

The question remains - is Robinhood running a b-book.  For those who are not familiar with OTC brokerage, a b-book is where the losers trade.  When you open an account, you get flagged either as a winner or a loser, if you are on the A-Server then your trades flow through to the market, this is known in OTC as "Straight Through Processing" minus a small fee, or the "A-Book."  The "B-Book" or "Broker Book" or "Bad Book" depending on who you ask, is where your trades are placed directly against the broker itself - like spread betting.  In this case, the customer losses become the brokers profits, and the reverse.  This typically works well for brokers as most retail traders lose.  But is Robinhood running a b-book?  The answer is we don't know and would not know, because a b-book broker would never disclose it.

According to public data, this may be a complex convoluted b-book.  Citadel not only pays Robinhood for order flow data, Citadel Securities also clears orders for Robinhood.  Not only that, Robinhood gets 35% of it's revenue from Citadel:

According to a June report from the Financial Times, $39 million of Robinhood’s revenues from equities and options order flow came from Citadel Securities, a market maker sister firm of Citadel. At the time, this represented more than 35% of the trading platform’s revenues.

Which looks like the FXCM trick; Robinhood is not operating a b-book.  They clear through Citadel Securities, a market maker, who b-books the trades (goes short basically) by not clearing them.  In addition to that, Citadel is heavily invested in Melvin Capital, the hedge fund with a massive short position in $GME.

NOTE: It is not possible to short private equity stock.  Robinhood is currently a private company, available on private markets.  They claim to have plans for an IPO but so did Refco.  If Robinhood's book is as toxic as it seems, there is no way out for the firm other than to drive the prices of these stocks back down, or to simply reverse the positions which never really existed in the first place.  They might want to call b-book mastermind Dror "Drew" Niv who was able to mask his b-booking operation by creating an offshore entity who was the sole counterparty of transactions below a certain size.  He's currently chumming it up with his bros in Greenwich, CT since his firm FXCM has been permanently banned by the NFA.

We aren't saying that Robinhood is a fraud, we are saying that all the signs are there.  For equity brokers who clear their orders properly, there is no reason to limit $GME purchases to one.  There is no reason to limit withdrawals, or need 'liquidity' for net cap requirements.  Running a broker-dealer is not so complicated like an OTC desk, orders match up and it's all exchange traded.  Broker dealers don't take any risk, at least any meaningful risk.  Market makers do.  This is the question that we should be asking Vladimir - are you acting as an agent or a principal?

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Reference & Research  

Robinhood raises $1B after trading halts to keep its platform running

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