(Replying to PARENT post)
The piece people seem to misunderstand the most is that total short interest won’t tell us if specific shorts were closed out. New shorts can replace old shorts at the higher price.
It’s like arguing that nobody could have lost their job or got a new job because the national unemployment rate was unchanged. Aggregate numbers don’t tell us about specific shorts.
Is it really so hard to believe that people would want to short the downside of an obvious short-term market bubble?
(Replying to PARENT post)
Hedge fund has huge unrealized loss that may bankrupt them if they try to buy the shares that they shorted back.
Their broker realizes too late, and if they margin call them now, the hedge fund might not have enough money to pay for the shorts. Thus, the broker will need to pay.
DTCC realizes this, and ups the collateral requirement so that the broker / clearing house has to insure someone will pay (whether it's the broker or hedge fund).
Because DTCC works with all the clearing houses and brokers, the risk from the hedge funds is suddenly everyone's problem to deal with together. By trying to deal with it, they close down trading for retail, and coincidentally aid the hedge funds short position.
Maybe the answer to this is DTCC needing to have collateral requirements per clearing house or broker where they think the risk is highest (the bankrupting hedge funds). Maybe it's regulation to not allow such high leverage or force margin calls faster so the losses can't be too big to fail. Hopefully something is done to fix it!
(Replying to PARENT post)
Presumably because hedge funds have more lenient margin agreements than retail. After all, it's easier to collect from a hedge fund with billions AUM compared to a bunch of millennials living paycheck to paycheck with $50k of student loans.
(Replying to PARENT post)
If anything wasn't the market worried that RH would go bankrupt (when the GME inevitably crashes)?
Unlike retail, hedge funds and market makers have risk modelling, and they got out of trades they can't afford (plus all the shorts had collateral, if they can't afford it the broker closed it).
(Replying to PARENT post)
Everyone seems to be missing the point of WHY collateral requirements have gone up. It is not because of volatility of the price movement, but volatility of whether the trade will clear.
The reason the trade might not clear is because of hedge funds or market makers that might go bankrupt, and not have the capital to pay for the shorts that they need to buy back. The collateral is there so that if the hedge fund can't pay, the clearing house or broker must pay. What seems to have happened is somewhere along the line a broker did not margin call the hedge funds fast enough, and DTCC with their collateral requirements has spread the risk from that one broker or clearing house to all of the brokers. In essence, the hedge funds losses are in a way "too big to fail" now because of the way the risk was spread.
In this system, everyone is working to protect themselves (thus not conspiracy), which in turn happens to be screwing over retail. The big issue is the broker somewhere or risk management team that did not force the short sellers to buy back their shares when it was still possible to do so without affecting the brokerages. They missed the time and now the losses might be too large to absorb.
Meanwhile, they have no problem margin calling retail. Robinhood might be faced with an impossible situation they didn't cause, but they also aren't pointing the finger at the culprits and where the problem started, which is some entity allowing the hedge funds to be over leveraged and then not de-risking from that leverage fast enough when the trade went against them.
A lot of this is explained by the webull ceo in this video: https://www.youtube.com/watch?v=4RS4JIEVyXM&feature=youtu.be