#ROBINHOOD REQUEST WAS THROTTLED PLUS#

The amount required by clearinghouses to cover the settlement period of some securities rose tremendously this week. Clearinghouses can also require additional deposits if certain thresholds are met. If a firmвЂ™s customers have more buy than sell orders, and the securities theyвЂ™re buying are more volatile, the deposit requirement will be higher. The clearinghouse may assign significant additional charges based on how much of one stock a firmвЂ™s customers hold. They use a volatility multiplier, looking at specific stocks, to quantify their risk. ItвЂ™s pretty technical, but the process basically works as follows: clearinghouses look at a firmвЂ™s customer holdings as a portfolio. How do clearinghouses determine how much is required? We withdraw money on some days, and deposit money on other days, depending on that dayвЂ™s requirement. To clear and settle customer transactions, each trading day by 10am ET, clearing brokers like Robinhood Securities have to meet those deposit requirements to support their customer trades between the trade date and the date the trades settle. Clearinghouses establish financial requirements for members including deposit requirements designed to reduce risk to the clearinghouse. These clearinghouses have membership rules, approved by the SEC, that govern the activity of their members. Clearing brokerages, like Robinhood Securities, are members of clearinghouses. They keep a record of the stocks owned through a brokerage.

#ROBINHOOD REQUEST WAS THROTTLED PLUS#

In the industry, this is referred to as the trade date plus two days to settle, or вЂњT+2.вЂќД¬learinghouses are SEC-registered organizations that act as the central depository for securities. This is known as вЂњclearance and settlement.вЂќ In other words: everyone getting what they agreed to when the trade executed. It takes two days for the clearinghouse to transfer the stock to the buyer and funds to the seller. Market makers send a record of the trade to Robinhood Securities, which works with a clearinghouse to record the trade.

When you buy or sell a stock, Robinhood sends your orders to market makers that execute your trades. HereвЂ™s an overview of the mechanics -or the plumbing -behind your trades. With the extraordinary market activity this week, and the temporary restrictions we put in place on certain securities, weвЂ™ve received questions about how Robinhood works, trading, clearing and settlement, and clearinghouses.

Robinhood request was throttled