Episode 7 of Season 3 of The Scoop was recorded remotely with Frank Chaparro of The Block and Shane Swanson of Greenwich Associates.
Listen below and subscribe to The Scoop on Apple, Spotify, Google Play, Stitcher or wherever you listen to podcasts. E-mail comments and review requests for [email protected]
This episode of The Scoop is offered to you by Blockset. With Blockset, companies gain access to tools such as:
1. A highly scalable API that supports Bitcoin, Ethereum, Ripple and other major chains
2. AML / KYC data speeding up time to market, complying with legal requirements
3. Leading custody solutions using modern multi-party computing (MPC) technology
The stock markets have seen unprecedented trading levels in the past few days, fueled by retail trade activity linked to Wall Street bets. Robinhood – who has become the main figure in this drama as the place through which many of the publicly visible trades took place – has been a focal point of this market scenario after yielding under the pressure of intensified activity and temporarily limiting purchases of certain stocks, like GameStop and AMC.
In response, Robinhood moved forward and linked his response to the underlying settlement infrastructure. Robinhood said in a blog post that the trading limits were related to the clearinghouse’s increasing deposit requirements. The company later said that a move to a real-time trade deal would solve the problems faced not only by Robinhood, but by other brokers. Here is the blog:
“The clearinghouse’s deposit requirements are designed to mitigate risk, but last week’s wild market activity has shown that these requirements, together with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks.”
Shane Swanson of Greenwich Associates – a market structure expert and former director of Citadel Securities – details exactly what happened to the markets last week and why things stopped being traded in a new episode of The Scoop podcast.
Here’s Swanson:
“I like to use examples because I’m a simple guy and examples seem to help. If I’m a broker and I have $ 10,000 in capital and those are not the exact numbers, but let’s say it allows me to trade $ 100,000 in the market because I have some capabilities I’m going to let someone trade with me and give them margin, which means I’m going to lend money and they’re going to trade, and I’m exposed to that loan risk. And they trade high and use all my $ 100,000 that I have permission to expose myself, once I reach $ 100,000, I can no longer trade. I cannot expose myself to more risk. I used the bucket of capital that I can now trade. “
As for what happens next, Swanson told The Scoop that “it is always difficult to backtrack on cost”, referring to the ramifications of moving from T + 2 to a more instantaneous settlement process.
“It all depends. If the costs are blatant enough that the industry has to absorb the commissions, it can go back. The move from liquidating T-plus 2 to T-plus 1 would be over a long enough time horizon, I believe. that it wouldn’t be something that ends up impacting retail investors in terms of cost, ”explained Swanson.
A full summary of this conversation will be published next week. We hope you enjoy the episode.
© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or is intended to be used as legal, tax, investment, financial or other advice.
Related Reading