More evidence has emerged from the court document that reveals the extent of disregard exhibited by Robinhood’s executives. Although to date, these are considered as speculations, new evidence proves these speculation to be right;
- Robinhood had a liquidity crisis (with proof)
- Citadel ‘could’ have orchestrated the whole thing
- All the decisions were made deliberately, even after knowing that it was against the law.
It was blatantly apparent that Robinhood was facing a liquidity crisis during the January short squeeze. But Robinhood has been categorically denying this, and its CEO Vlad Tenev reiterated this during his congressional hearing.
Leaked communication documents tell a different story. At about 5 am EST, Robinhood received an email from NSCC indicating that Robinhood had a deficit of roughly $3 billion. Citadel had helped Robinhood to raise these funds.
Shortly after this, Robinhood decided to move meme stocks to PCO (position close only), meaning users can only sell them and cannot buy them.
In contrary to what Robinhood stated publicly and its CEO under oath claimed – Robinhood had liquidity issue. And this statement is confirmed by Robinhood’s Chief Operating Officer, Gretchen Howard.
Citadel plays a prominent role in Robinhood’s business model. Controlling more than 40% (47% claimed by Congresswoman Maxine Waters in the video), Citadel processes almost all of the retail trades made by Americans. There were also widespread speculations earlier this year that Citadel was looking into buying out Robinhood.
43% of Robinhood’s Q1 2021 revenue came from Citadel. So the relationship between Robinhood and Citadel can’t be questioned – they are indeed very close. But when Citadel tweeted on Monday in response to the trending #kengriffinlied hashtag on Twitter; It raised even more questions.
In the thread, Citadel Securities claimed that They were the only major market maker during this time that provided continuous liquidity every minute of every trading day. This raises a very serious question – Are liquidity requirements monitored by the relevant Government agencies?
Citadel and Robinhood in Cahoots
On the eve of Jan 27, Citadel Securities’s Vice President of Business Development emails Robinhood personnel offering to schedule a call with CEO Vlad Tenev. Jim Swartwout, president and COO of Robinhood, in turn responds minutes later, “Because of our partnership, Vlad would like to have a discussion with Ken [Griffin] at some point, just given our relationship. Not specific to this crazy issue.”
Robinhood knew that PCO would be adopted by other brokerage firms too. Robinhood is not the only brokerage offering’ commission free’ trading. Citadel would likely have dealt similarly with other brokerages too.
One such broker was E*Trade, whose high-level employees communicated with employees of Citadel Securities to ensure certain orders were cancelled. One of their Senior Manager’s email Citadel Securities about “Potential open orders” and listed many securities – to which Citadel Securities confirmed that several of the orders were “Canceled.”
This is in itself is anti-competitive, to which all brokerages seem to be working in cahoots with Citadel.
At one point, Robinhood limited users to purchasing imposed limitations on the Relevant Securities. With respect to GameStop, Robinhood first restricted Retail Investors to purchasing only two shares of GameStop, which resulted in a rapid decline in the value of GameStop.
From these leaked emails, one thing is obvious. Citadel securities seem to have a lot of control over trading platforms that offer ‘commission-free trading’. Robinhood might have been the first brokerage to restrict the ‘buy’ orders – but others followed suit; pretty much straight away. These brokerages’ coordinated efforts ensured that the price went back down drastically – when retail traders were taken aback by what was going on.
Robinhood relies on payment for order flow for revenue and sold a significant portion of its order flow to Citadel Securities; the two firms had the motive to cooperate due to their close economic relationship. Indeed, in several internal conversations, high-level executives of Robinhood and Citadel Securities stated the firms had a “strong relationship” and that the relationship was a “partnership.”
All the leaked email conversations and actions of brokerages during the week of Jan 25, 2021, points to one firm – Citadel Securities. And these also affirm that decisions were made knowing that ‘they were breaking the law.’
Citadel Securities has responded for a second time in the last 24 hours, denying all of these. Monday was their first tweet since January. Indeed, these documents have rattled some feathers.