Wednesday, February 10, 2021

Robinhood, GameStop, and Clearinghouses

Co-blogger Joan Heminway predicted that GameStop Will Be 2021's Great Gift To Business Law Professors.  Totally agree.  I think it’s also a great gift to those of us who research financial market infrastructure, particularly clearing and settlement.  This episode has highlighted the importance of clearinghouses.  In the past, I’ve written several posts on clearinghouses (for example, here, here, here).  In preparing to speak on this topic during the UT Law roundtable last week, I came across several great articles about the role of clearinghouses and margin calls in the Robinhood/GameStop story.  I share a few of these below with readers. 

Keep in mind that the DTCC’s clearinghouse, the National Securities Clearing Corporation (NSCC), was designated in 2012 by the Financial Oversight Stability Council (FSOC) as one of eight designated financial market utilities under Dodd-Frank's Title VIII.  These designated FMUs are single points of failure in financial markets.  I've written extensively about Title VIII, beginning with The Federal Reserve as Last Resort.

Jeff John Robert’s Fortune article:  The real story behind Robinhood’s decision to restrict GameStop trading – and that 4 a.m. call to put up $3 billion.

Telis Demos’ WSJ article: Why Did Robinhood Ground GameStop? Look at Clearing

Stephen G. Cecchetti & Kim Schoenholtz’s blog post, GameStop: Some Preliminary Lessons

Robinhood’s post on “What Happened this Week

Colleen Baker, Financial Markets | Permalink


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