Banning Robinhood | The SEC & State.

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dollars now let's talk about

robinhood hey everyone meet kevin here

in this video we're going to talk about

whether or not robin hood is uh going to

get

banned we're going to talk about the big

old ban attempts going on with

massachusetts we're going to talk about

the attempts by the sec we're going to

talk about fines and lawsuits

let's go through all this and try to

figure out what the he double hockey

sticks is going on

and we got to talk about what happened

with doge and robin hood this weekend as

well because

let's just say i was trying to sell some

doge and uh it was a little bit of a

disaster and by a little bit a disaster

i mean

a whole lot of a whole lot of this right

here

yeah that's not good something went

wrong please try again i don't want to

see that

and robin hood probably didn't want to

see that either in december of 2020 when

the sec charged them and fined them

65 million for deceiving

users on how robin hood makes money

which now we know has a lot to do with

payment for

order flow which is probably their

biggest source of revenue which

basically means that other companies pay

to potentially process payments faster

for robinhood or transactions for

robinhood faster

but in the meantime they get the

opportunity to maybe make a little bit

of spread and front run some of your

orders

when you place a buy or sell order which

means

you might be getting the best pricing

but that might not be

the best pricing yeah if you're confused

on that one don't worry

i'm gonna break down a loophole that we

gotta look at

in just a moment but stay tuned because

folks this includes the fact that the

sec

also charged a robin hood not just for

deceiving customers on how robin hood

makes money

but also for arguing that robin hood

gives their customers

far inferior pricing than the

competitors

and far inferior pricing is not any user

of robinhood wants to hear

now remember payment for order flow is

not uncommon

but payment for order flow really blew

up during the robin hood and gamestop

debacle

quick refresher gamestop shares started

skyrocketing as users on wall street

bets which is a subsection of reddit

were convinced that gamestop would

suffer a short squeeze when they

discovered that gamestop was over

130 seven percent short which means

there were more

shorts outstanding than there were

actual shares as users flooded in

the price of gamestop shares rose and on

the

losing end of that trade was a company

called melvin capital

along with others of course but melvin

capital being one of the largest to have

lost hundreds of millions of dollars to

over

a billion to two billion dollars because

they were shorting gamestop

and they were the unlucky short holding

individuals or company

when this big ol short squeeze at

gamestop happen

citadel securities is a company that

ended up coming in to bail out

melvin capital but citadel securities

also

handles payment for order flow at

robinhood

and it's not only somebody who handles

order for

or payment for order flow at robinhood

it's potentially the biggest

or maybe even the only company to handle

payment for order flow at robinhood

and so this naturally led to a lot of

red flags that wait a minute

if citadel is bailing out melvin capital

that means citadel

is investing in melvin capital and the

more

people buy gamestop the more citadel's

bailout becomes

worthless and citadel is a big

partner with robin hood and robin hood

disables the buy button to prevent

people from continuing to buy gamestop

shares

leading to gamestop shares to plummet

you kind of start wondering

oh we got some potential shade here

whether or not that's actually what

happened now it all seems very fishy

obviously we

talked to vlad on this channel you can

see those interviews

type in meet kevin vlad from robin hood

into youtube and you'll see my interview

with vlad

and we see that vlad says look robin

hood just couldn't

handle the amount of reserve

requirements that we needed and that's

because their argument was that the dtcc

increased reserve requirements and

basically they woke up one

morning and got a fax print out and went

oh my gosh you want us to have that much

money on reserve for us to be able to

continue supporting gamestop stock

sounds like we're not going to be able

to support gamestop stock that's their

argument

they call it a five to ten sigma event

we'll see

it's all very very fishy but

relitigating what happened in the past

isn't what's most interesting here

instead what's most interesting here in

my opinion

is talking about the whole world of best

execution when it comes to order

execution

so here's the thing when you place a

stock order

at let's say ten dollars a per share

usually

there's a bid and an ask price it's a

range

so generally your order will go through

within a penny to two pennies of

this this range well you'll put your

order in at that range and if it's a

limit order it'll go through at that

range or it won't

and if it's a market order it'll go

through within a range this range

gives folks the ability like high-speed

traders

the ability to front load your trades or

potentially

try to save you a little bit money by

maybe ordering things in a certain way

and batching things in a certain way

maybe doing some pairing before they go

to the exchanges

who knows exactly what it is they do

it's all very very arcane

but the point is the argument of these

market makers like citadel security is

hey well we're going to do whatever we

can to get you the best

pricing on your orders and for most

people

if you put in a thousand dollar trade

we're talking about

a few pennies usually of a difference

here

but over billions of dollars worth of

trades in a year we're talking

millions to tens to hundreds of millions

of dollars

via payment for order flow it's a very

very profitable business

not for the individual person but for

all of the individuals at play like

robin hood

and citadel now the individual person

gets their shares executed but the big

question is wait a minute

if robin hood is making money by

basically selling our data and we're the

customer

why does robinhood have an incentive to

actually give us the best pricing

and is the best pricing actually the

best pricing

see because if you were to get worse

pricing via the payment for order flow

model

if they're just like hey you know let's

just shave a couple extra pennies off

this guy and just give them a little

worse pricing in theory that means

citadel can make more money which means

citadel can kick back more money to

robin hood and so this is where

when you talk to vlad and robin hood you

hear that well robin hood's going to

give you the best pricing and

that robin hood prides themselves on

giving their customers the best pricing

but wait a minute best pricing in the

world of payment for order flow is

not actually the best pricing see in a

congressional hearing

in february of 2021 that i watched

completely and we even live streamed we

discovered

that best pricing is actually the

normal form of execution for trades

so this actually means there is a better

version of executing trades

and that is called the premium or

preferred execution model

so in other words let's say you have a

range here a bid ask of i don't know

ten dollars and five cents to a range of

ten dollars and ten cents

this might be the best execution pricing

for a buy on this stock but what if

there was another level and it was

called the

preferred level and you wanted to place

an order on that stock and the range was

actually 10.03 to 10.06

let's say or to make it simple let's

just go

five now the high frequency traders can

still make money within this range

they're they're interested in this range

they can make money over here too but

where can they make

more money and the crazy thing that's a

little crooked about the industry is

why is the preferred not called

best why is best actually potentially

the worst and that's when you actually

peel back the layer of the industry even

just a little bit because don't get me

wrong i don't know anything i'm just the

dude on youtube

i don't know that much about this but i

know there is a better execution model

than

best and to me that just seems a little

shady now i'm not saying that robin

hood's shady because of that

and i'm saying the whole payment for

order flow system is a little shady for

that

and so this kind of brings up some of

the madness that's going on with robin

hood

obviously what we saw on january 28th

and a lot of debate over payment for

order flow has led to an insane amount

of

lawsuits for robinhood i mean we're

talking over 20

different lawsuits and i've read through

some of these lawsuits and one of them

dana luck versus robin hood i'm going to

read you a little excerpt here

wall street's apparent response to the

successful gme short squeeze

was not a soul-searching

self-examination of bad

bets and excessive risk but rather a

malicious attempt to disrupt

retail investors successful investment

strategies

while preventing melvin capital from

going bankrupt

when wall street lost they simply

changed the rules

that is a juicy line right there that is

a good one you look that one up dana

luck

versus robin hood you might actually

have to go into the courts

to pull these lawsuit documents i pulled

every single lawsuit document

and uh together myself and a helper

found some of these quotes for us

here's another one we verse robin hood

and that is pronoun or well it's spelled

w-e-i-g versus robin hood

robin hood purposely willfully and

knowingly removed the stock gme

from its trading platform in the midst

of an unprecedented stock rise thereby

depriving retail investors of the

ability to invest

in the open market and manipulating

the open market now it's nice for

lawsuits to throw in the word

market manipulation but we've covered

market manipulation on this channel

before

needless to say it's very very difficult

to argue market manipulation in the eyes

of the sec

but in the eyes of a court as if a court

could totally slam robin hood for market

manipulation here

and so these lawsuits will remain a risk

for robin hood

now what's interesting is the sec's

definition of market manipulation

requires

documentation and evidence of really

colluding

with a group of people like almost like

a cartel

colluding with folks to purposefully

manipulate a market and in a convenient

example we could look at a pump and dump

you get let's say 10 youtube influencers

all really excited about this new penny

stock

and you get them to say they bought in

and you pay them for that

which i'm gonna make a clear note here

yeah

i got those courses linked down below

and that expiring coupon code which i've

briefly extended because the market's

poopy doopy and i got a new marketing

dude so check those out if you still

want to get uh use that coupon code to

the moon

check out that link down below and join

me in those amazing courses on building

your wealth with real estate stocks

uh investing youtube you name it check

it out get private live streams as well

but beyond that i want you to know i've

never accepted a dime

for an interview or a stock to

say a word about a stock never

coordinated with a company on what to

say on a stock and so

i in my opinion that's really really

really really important never gotten

paid

uh so anyway i want to get that out of

the way okay but this does happen

so as an example of market manipulation

imagine you do have a group of youtubers

who accept payment

and then all of a sudden on a particular

day the company announces something and

all the youtubers talk about how they

bought into this company

in theory you could pump a penny stock

from

i don't know 60 cents to a dollar like

that

or a dollar to six dollars like that

could happen

very very very quickly that would

probably be deemed market manipulation

by the sec because you've got a group of

individuals colluding

to pump a stock at a particular point in

time it's a little bit less clear for

robinhood because

robinhood didn't invent the payment for

order flow system they just responded to

it

and they responded to the disaster up

allegedly responded to the disaster of

these new

reserve requirements that robin hood

needed so proving market manipulation

might be a little bit tougher for robin

hood

but it's going to be fascinating to see

what happens

about all the other players who've

potentially

forced robin hood's hand and this is not

me trying to

defend robin hood because look we got

some other big problems with robin hoods

oh robin hood not robin hoods there's

only one two weekends ago warren buffett

slammed robin hood for encouraging

traitor-like behavior and short-term

thinking along with getting folks

exposed to risky bats like weekly call

options

basically encouraging gambling we've

also got

massachusetts the state of massachusetts

saying that robin hood quote

has continued a pattern of aggressively

inducing

and enticing trading among customers

obviously something that would increase

robinhood's payment for order flow and

therefore profit

and is threatening massachusetts is

threatening to kick

robinhood out of massachusetts entirely

basically removing robin hood's license

to operate as a possibility

elizabeth warren just yesterday

suggested the sec take a close look at

robinhood

and the sec is doing just that the sec

is evaluating whether there should be a

more

or more competitive model in the payment

for order flow space

maybe they'll write a rule that says

look one market maker like citadel can

only make up 10

of your payment for order flow or some

sort of limitation so that there's

more market maker competition the new

sec chair

echoed his concerns he said quote many

of these

features at robin hood encourage

investors to trade

more trading more leads to more payment

for order flow revenue and we need more

competition

in that space or at the very least more

disclosure

he goes on to say some academic studies

suggest more active trading

or even day trading results in lower

long-term results for the average

trader the sec is now investigating

payment for order flow

and the features of robinhood and at

this point i think it's worth coming up

with some potential conclusions

obviously time will tell lawsuits that

were filed in january from the gamestop

crisis

probably won't actually wrap up when

they all bundle together in a

class-action lawsuit

probably won't bundle up and be done

until 2023

by that point these lawsuits will simply

become a little footnote disclosure on

robinhood's public filings after

robin hood ends up going public and

ipo'ing which they've already

confidentially filed to go public

if robin hood ends up going public in

the market rebound that i hope we will

have in september

october and when the market's really

nice and green again which would be a

smart time to do it

then robinhood also well hopefully robin

hood also comes out and proves insane

profitability and they look back and go

hey look we've been

top 10 in the app store for x many weeks

on the iphone app store

we're growing like crazy yeah we had a

bump there in q1

2020 but we've gotten through it we've

improved things we've made things better

robinhood could actually do very well

long term and i don't actually think

that

these lawsuits are going to do anything

other than reward maybe some monetary

damage maybe

to folks in a class action lawsuit it's

kind of like hey here's your postcard

you got two dollars from a class action

lawsuit because the attorneys got rich

instead

it's entirely possible that that ends up

happening robinhood might get slapped

with a fine from the sec but

looking at the game itself it'd probably

end up being some people like citadel

and melvin

or maybe even the dtcc that ends up

getting slapped with some of the

manipulation that may have happened

there who knows if it ends up being

robinhood but even if it is

probably just end up being a slap of a

fine very unlikely to be a banning of

robin hood

however you do have massachusetts that

is actively trying to kick out robin

hood and ban them

however that's also a lawsuit and it's

gonna be another couple years as well

quite frankly by then frabino goes

public the market recovers

people's memories are short i don't know

robinhood could be around to stick

around now

that does depend though because i have

to say i get

really peeved when i'm on robin hood and

i get stuff like this i have to say

it's really annoying because when you're

getting red candlesticks like this

and you're trying to sell and

robinhood's telling you you can't sell

because you're getting error messages

like this something went wrong

kind of start freaking out a little bit

anyway folks thank you so very much for

watching my thoughts on

robin hood and the future of robin hood

appreciate y'all i consider checking out

those programs link down below if you

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