The suits have done it again and they have pissed off everyone. Today brokerage platforms across the United States halted the buying of certain securities. GameStop was halted. AMC Entertainment was halted. Koss Corporation, halted. The brokerage houses forced our hands. The only thing we were allowed to do was sell.
It turns out the issue with why so many brokerages restricted trading on certain "hot" stocks is not because of secret overlords directing them to do so, but because some of the clearinghouses (DTC) that settle the trades couldn't handle the counter-party risk - specifically covering the sale and actually delivering the funds to the seller. This is called settlement, and currently it takes T+2 days to settle where T=date of transaction (used to be T+3, and prior to that...literally the time it took for one physical stock certificate to exchange hands between people). - side note: this is where blockchain can actually solve settlement and make it immediate (or however long it takes for the blockchain to validate - currently 15 min or so for bitcoin for example).
When you buy a stock, a small down payment - usually 1%-3% (set by the clearinghouse) of the value of the transaction is sent from the brokerage to the clearinghouse who then fronts the rest of it to the counterparty selling you the stock. They generally have enough liquidity to cover the trade and allow it to proceed.
However, when you now inject volatility where billions upon billions of a single stock are exchanging hands where the spread is between $8 to $500+ (and likely higher as this short squeeze is taking place), suddenly even the clearinghouse won't have the funds to cover the trade. So what did the clearinghouses do? They raised the down payment from 3% to...100%. Some of the newer brokerages just don't have that kind of liquidity, so instead of sending 100%, they temporarily stopped buy orders which stopped new order flow which stopped new positions from being opened on the clearinghouse.
This requirement was up in order to protect the solvency of the entire market...
This is why Robinhood just raised $1 billion in an effort to try and comply with the 100% requirement.
Okay, so why then are you allowed to sell?
When you close a position (e.g., sell a stock you own), the brokerage already holds the stock. They don't have to front anything for the sale and the clearinghouse requires no collateral.
I am currently short the $9 amc puts Jan 29 puts that I sold on Wednesday and was up almost 40% in a matter of hours and then today was down almost 200% at one point because IV skyrocketed even though it was still trading above $9. I can't wait for them to expire tomorrow... nervous about them. Anyways, value stocks underperformed for more than a decade and possibly it's time for them to outperform the next decade. However, I am hoping to capitalize on the 5G trend stocks soon but alot of them have already gone up. Have waited for a correction and still hasn't happened yet. Why not sell out options to acquire shares.?
Robinhood Decarded War: The Shot Heard Around The World
It turns out the issue with why so many brokerages restricted trading on certain "hot" stocks is not because of secret overlords directing them to do so, but because some of the clearinghouses (DTC) that settle the trades couldn't handle the counter-party risk - specifically covering the sale and actually delivering the funds to the seller. This is called settlement, and currently it takes T+2 days to settle where T=date of transaction (used to be T+3, and prior to that...literally the time it took for one physical stock certificate to exchange hands between people). - side note: this is where blockchain can actually solve settlement and make it immediate (or however long it takes for the blockchain to validate - currently 15 min or so for bitcoin for example).
When you buy a stock, a small down payment - usually 1%-3% (set by the clearinghouse) of the value of the transaction is sent from the brokerage to the clearinghouse who then fronts the rest of it to the counterparty selling you the stock. They generally have enough liquidity to cover the trade and allow it to proceed.
However, when you now inject volatility where billions upon billions of a single stock are exchanging hands where the spread is between $8 to $500+ (and likely higher as this short squeeze is taking place), suddenly even the clearinghouse won't have the funds to cover the trade. So what did the clearinghouses do? They raised the down payment from 3% to...100%. Some of the newer brokerages just don't have that kind of liquidity, so instead of sending 100%, they temporarily stopped buy orders which stopped new order flow which stopped new positions from being opened on the clearinghouse.
This requirement was up in order to protect the solvency of the entire market...
This is why Robinhood just raised $1 billion in an effort to try and comply with the 100% requirement.
Okay, so why then are you allowed to sell?
When you close a position (e.g., sell a stock you own), the brokerage already holds the stock. They don't have to front anything for the sale and the clearinghouse requires no collateral.
I am currently short the $9 amc puts Jan 29 puts that I sold on Wednesday and was up almost 40% in a matter of hours and then today was down almost 200% at one point because IV skyrocketed even though it was still trading above $9. I can't wait for them to expire tomorrow... nervous about them. Anyways, value stocks underperformed for more than a decade and possibly it's time for them to outperform the next decade. However, I am hoping to capitalize on the 5G trend stocks soon but alot of them have already gone up. Have waited for a correction and still hasn't happened yet. Why not sell out options to acquire shares.?
Amc