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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
oh shit this is a deeper story than i expected
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Toxic
@toxic
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Step 0: Citadel pays Robinhood for order flow. Citadel gets to see RH's orders a few milliseconds before they're filled. Citadel may choose to front-run some of those trades. Step 1: RH's customers and WallStreetBets start manipulating $GME. This is happening in the open.
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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
hmmmmmmmmmm
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Toxic
@toxic
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Step 2: HFTs buy shares ahead of Robinhood users. Remember Citadel, the firm who can front-run robinhood trades, and got to see all of that RH data a little early because they paid for flow? Yeah. When do you think they started buying $GME in front of RH traders on momentum?
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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
hmmmmmmmm
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Toxic
@toxic
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Step 3: A hedge fund becomes insolvent. Today it was Melvin Capital Management. It very likely won't be the last. Melvin immediately sells off a portion of itself, because it needs the influx of cash or it will vanish in a poof of smoke, vaporizing ~$15 Billion in the process.
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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
hmmmmmmmmmm
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Toxic
@toxic
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Step 4: Who's the lead investor, picking up part of a usually successful fund at fire-sale prices? Right. Citadel, probably with some of the cash they made by repeatedly profiting in the milliseconds before filling the trades that collapsed this fund. wsj.com/articles/citad
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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
hmmmmmmmmmmmmmmmmm
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Toxic
@toxic
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Step 5: Citadel still has access to RH order flows, is still allowed to front-run them and/or pocket the spread, and can use that and other information to determine the next over-leveraged fund that's going to get squeezed. They might even be able to accelerate the squeeze.
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QC (in Berlin 7/29-??? w/ COVID 😷)
@QiaochuYuan
matt levine killing it as usual but also i am running out of free bloomberg views rip
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Andy Matuschak
@andy_matuschak
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I am not sure what special award the internet can give to @matt_levine which would match the value of his commentary on the GameStop madness, but whatever it is, I would like to vote for it. Links to the past few episodes from today’s if you’ve missed: bloomberg.com/opinion/articl
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