The hottest story of 2021 so far is WallStreetBets.  WSB is a Reddit forum that has made headlines after members’ successfully triggered short squeezes against many hedge funds.  While many investors study short interest to try and make outsized returns during a short-covering rally, the sheer size of the squeezes taking place are eye-popping:

“By Friday, short-sellers had lost $19.75 billion on GameStop so far this month alone, according to S3 Partners”  Fortune

“Goldman Sachs says this is the biggest short squeeze in 25 years, with shorted stocks up 98%” CNBC

“if the short squeeze continues, the entire market could crash.” Goldman

A billion here and a billion there and eventually people start to take notice.  Robinhood took notice last week and started to try and slow the swell of retail buying in multiple stocks.  Robinhood CEO, Vlad Tenev, strained to explain that the company had to stop or limit trade in numerous stocks because of “clearing house deposit requirements.”  While this may have some truth to it (see clearinghouse deposit demands) the reality may be that Robinhood’s “payment for order flow” revenues were at threat of drying up if the company didn’t slow the onslaught of buying in certain stocks. 

“Taking payments for order flow from Wall Street firms is a controversial, but legal practice done by most electronic brokers. For Robinhood, it’s the biggest revenue source.” CNBC
Related: SEC charges Robinhood with misleading customers about how it makes money CNBC
Related: Robinhood fined $1.25 million by its regulator for how it executed trades BI

In other words, the real question may not be why did clearinghouse fees spike, but why did they spike in stocks that certain Wall Street players were betting against?  Additionally, did the parties that paid enormous amounts of money for Robinhood’s order flow have anything to do with the abrupt changes to clearinghouse demands?  Given that “Robinhood is a villain!” is getting all the coverage today, these very serious questions have received very little attention. Some digging unveiled this gem:

“The high-frequency traders and hedge funds that could predictably trade against the ‘dumb’ money from Robinhood traders and pay Robinhood for that information are now realizing that the order flow they are buying is no longer predictable or safe for them. In fact, it now includes thermonuclear bombs in the form of GameStop and AMC” CNBC

In short, Robinhood is not in the business of caring about what clients buy and sell, at least until someone or something tells them to start caring.  They got told last week, and maybe one day we will know by whom…