If you’ve been away from the news for a while, or if the machinations that occur in U.S. equities markets on a regular basis just aren’t your bag, then you may not know about the situation revolving around Gamestop, the Reddit group WallStreetBets, and Robinhood (among others). Long story short – things are crazy and getting crazier, with various “issues” related to trading of Gamestop (ticker: GME) leading to Robinhood, Interactive Brokers, Webull, and other online brokerages to limit or temporarily cease trading in the company’s stock.
Webull CEO Anthony Denier explained in a recent interview that there’s nothing nefarious going on with the trading restrictions, instead pointing to issues of cost. Noted Denier, “There is an outcry because a lot of the retail, they don’t actually understand the dynamics that happen after a trade. It has nothing to do with the decision or some sort of closed room smoke-filled cigar room of Wall Street firms getting together to the dismay of the retail trader. This has to do with settlement mechanics of the market.” Side note: a good number of the regulars on WallStreetBets Reddit group do, in fact, understand the very specific dynamics that occur during and after a trade. One well-known member is, in fact, is a chartered financial analyst. We’ll leave you to your own conclusions about the veracity of Denier’s claims regarding that group’s knowledge.
Still, Denier has a point. He and is company are in fact held hostage to a very dated settlement mechanism. Noted Denier in the interview:
Our clearing firm simply cannot afford the cost to settle those trades.
Webull CEO Anthony Denier on why trading in $GME was suspended
Denier’s claims are accurate. His company is barred from using company funds to pay for those costs, but during volatile moments the cost to settle trades does, in fact, go way up. The question is…why?
This is What Democratizing Finance Looks Like
Robinhood, the popular online broker offering commission-free trading, likes to say they’re “democratizing finance.” Quick sidebar: they’re not. But you know what sounds like a great idea? Using a dedicated blockchain application to make sure that equity shares of publicly-traded companies can be bought and sold – and transactions settled – without undue delays and certainly without the absolute cessation of trading in a given company.
Denier knows well the limitations of the current settlement system, and it’s likely that he’s familiar with blockchain. What’s unclear is why the limitations exist in the first place. Is this really the best we can do? On this side, we’re not sure…maybe it is.
On another note to all those going long $GME – stay strong with those diamond hands!
