Saturday, January 30, 2021

The plumbing details!!

The more complete version of he Robin Hood fiasdco.

One of the traders detailed the chain of command. I will try the layman's summary.

A RH (Robin hood) client agrees to pay some number X for a security, with RH. The proviso is that this is a commission free trade, so the client agrees to forgo formal clearing for a period to RH can find a better price and earn a margin.

It all starts there.  The rest is about options, centralized clearing; but that can all be collapsed into RH looking for a marginal gain to earn its commission. The same process, a seller agrees to sell for a price and let RH have time to earn a margin.

From thgen on the entire crack up can be modeled as an unstable network protocol, actually. The system has a basic flaw, it assumes the RH clientsd have a worse price predictor, or tat the RH clients are not colluding. That is, both the clearing party and the brokers all must assume that clients are taking infinitesimal steps.


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