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Can someone, who has expertise in this field, explain what the hell happened? How on earth is it possible that all brokers at the same time disallowed to buy ce

Can someone, who has expertise in this field, explain what the hell happened? How on earth is it possible that all brokers at the same time disallowed to buy certain stocks? Who is responsible for this? The SEC, the FED, the White House, or..? Who gave the call? Who has that much power?

betterunix2 6y ago
In all likelihood the internal teams responsible for risk management and compliance all determined that this was likely criminal activity, and recommended trading restrictions until the SEC weighs in. Brokerages are typically over-cautious about this sort of thing because they do not want to invite additional scrutiny from the powers that be. The brokerages probably did not communicate these decisions to each other, they just all use similar logic and all arrived at similar conclusions. Those that did not make this decision probably did not observe suspicious trading patterns from their customers.
- paxys 6y ago
  There is zero chance they all independently came to the same conclusion at the exact same time. There has to be a bare minimum amount of coordination involved, which is likely illegal. Either that or they got an order from the SEC/White House.
  - betterunix2 6y ago
    Financial companies all use the same logic to make these sorts of decisions, so yes, there is a very good chance that they independently came to the same conclusion at the same time.
  - mlthoughts2018 6y ago
    It’s also not a clear conclusion even remotely at all. There’s nothing remotely illegal about retail investors coordinating together to profit from a short squeeze opportunity.
  - wonderwonder 6y ago
    If they got orders from the SEC they would likely be shouting it from the roof tops by now in a desperate attempt to shore up their reputation.
    - paxys 6y ago
      Doesn't have to be an official order
- Ericson2314 6y ago
  Then they should have blocked all trading, not just buying. The benevolent story just doesn't hold up.
  - deleted 6y ago
    [deleted]
  - betterunix2 6y ago
    They blocked the opening of new positions. You can still buy if it results in a short position being closed. Pretty typical move, almost certainly done to protect themselves from scrutiny by the SEC and CFPB.
- dpbriggs 6y ago
  Why block buying and not selling? Why did they all come to the same conclusion at the same time?
  - betterunix2 6y ago
    They did not block selling, they blocked opening new positions. You can buy if doing so closes a short position.
    - dpbriggs 6y ago
      And that's somehow fine? It's blatant protection for short positions. These brokers are hamming up the "we need to protect retail from volatility" narrative when they're clearly trying their best to stop their business partners from going bust. It's sickening.
      - betterunix2 6y ago
        More like they wanted to preempt possible sanctions from the SEC for failing to take action when they observed suspicious behavior by their customers. Let's be clear about a few things. Brokerages do not care about protecting retail investors, they only protect their customers when forced to do so by regulators. What brokerages do is protect themselves from liability, financial losses, and scrutiny. They have no problem screwing over their customers when it suits them. They will raise margin requirements and force customers to take a loss as soon as their risk models say that they should do so. They will restrict trading whenever it looks like there is a scam, simply because it wards off possible investigations into their business. What they can get in trouble for, and RH did get a slap on the wrists for already, is working against their customers' interests for the benefit of their business partners. One brokerage I could believe, but I doubt that half a dozen would all do it at the same time and with the same securities.
        dpbriggs 6y ago
        That's great, but they should be halting trade of the stock all together if they really believed retailers were manipulating the stock. I can see the nice narrative of allowing retailers to sell ("capture gains"), but it's indefensible to only allow selling. That's _blatant_ market manipulation.
- pfisch 6y ago
  Except it is still ok to sell these stocks...ok bro...
- ClumsyPilot 6y ago
  they respond to 'likely criminal activity' with certain criminal activity?
  - betterunix2 6y ago
    Nothing criminal about it, brokerages do this all the time.
    - dpbriggs 6y ago
      I'm genuinely curious: can you find examples of brokerages only allowing buying, or only allowing selling? I'm not talking about edge cases with margin calls.
      - betterunix2 6y ago
        https://ibkr.info/article/2892 https://ibkr.info/article/2892 https://us.etrade.com/l/f/disclosure-library/otc https://us.etrade.com/l/f/disclosure-library/otc Would you like more?
        justupvoting 6y ago
        These are examples of specific, ahead-of-time rules for entire types of stocks, not a sudden, reactionary move against particular names.
        dpbriggs 6y ago
        Keep them coming. I want other examples where it's appropriate for some brokers to restrict _buying_ but not selling, especially in the context of a short squeeze, with potential conflicts of interest. I understand that brokers can restrict trade on risky items as yes, it impacts their risk model. I'm failing to find justification for RH and others to restrict buying but not selling of GME. Your first link is for penny stocks, and the restrictions revolve around the usual pump-and-dump. You're allowed to go long, and can trade between days. Your second link is for OTC, and I fail to see how this is relevant to GME. GME is traded on formal exchanges, and brokers that haven't arbitrarily restricted buying aren't having any liquidity issues.
deleted 6y ago
[deleted]
theshrike79 6y ago
People started losing money, LOTS of money. Phone calls were made and they reached the decision to shut down trading everywhere they could. We'll see how it worked in the coming weeks.
psychlops 6y ago
They didn't. It was TD, Interactive Brokers, and Robinhood. Maybe more by now, but they acted alone. My guess is that market makers that these brokers sell orders to said no. Brokers make a lot of money selling retail orders to someone else.
- sakopov 6y ago
  It's anecdotal but ETrade, TD, Ally Financial all started blocking buy orders at seemingly the same time - yesterday morning shortly after market open. The reason I know this is because I was on the phone with a friend at 9am Central and neither him nor I were able to purchase $GME, $BB or $GMC (he's on Ally and I'm on Etrade). Around the same time I started seeing messages on social media that TD was also blocking traders. I think you're right that the order likely came from MMs and everyone followed through.
- Avalaxy 6y ago
  Trading212 was also halting trading.
Armisael16 6y ago
Most of the zero-commission brokerages sell their order flow to market makers. Those companies just decided they didn’t like what the retail investors were doing and stopped accepting buy orders on those stocks.
lamontcg 6y ago
The problem is that if big short sellers like Melvin Capital go under that their counterparties are the brokers that will be ultimately holding most of the bag. This is what I couldn't understand about what the endgame of this would have to be. Because you can't really have a situation where all the shares are bought up sending the shares to infinity. At some point something breaks. Someone has to pay money for those shares. That could be that retail investors bolt for the door just like a bubble popping and because its difficult to maintain steadiness when you're looking at huge gains that aren't realized. And that is what they thought would happen. What would be more reasonable would be to liquidate Melvin Capital and anyone stupid enough to invest in them and the holders of GME shares would become creditors against that bankruptcy proceeding somehow. SEC would have to manage that unwinding somehow. But the problem is that the clearinghouses like Citadel are counterparties to Melvin Capital and they've privately bailed them out, taken over their shorts and will now hugely profit by suspending trading and riding those short positions down. This now entirely makes sense to me as what was inevitable, because while WSB was trying to destroy Melvin Capital they didn't understand that the implications of that were going to be destroying the clearinghouses through counterparty risk. And they were never going to let that happen, so they shut it all down and will eat the SEC investigation. This is a very interesting outcome just due to the moral hazard it creates with shorting. It is also a very interesting outcome because a lot of "little guys" just learned an object lesson in what happens when it looks like you are beating the "big guys". They won't let that happen. There's going to be a lot of political rage as a result of this. We're going to have to make a decision in the next 10 years or so if we'd like to funnel that rage towards socialism or fascism, the status quo is going to continue to enrage people.
- deleted 6y ago
  [deleted]
saddlerustle 6y ago
There's three phases of a trade: execution (handled by a broker), clearing (sometimes handled by the broker, otherwise handled by clearing firms like apex clearing or jp morgan clearing among others) and settlement (almost always DTC for US equities). Clearing and settlement involve counterparty risk - if a brokerage can't hand over the money come settlement, the settlement firm may be on the hook. The risk of this is proportional to volatility. Due to high volatility, DTC increased its settlement costs. This isn't usually a big deal to a clearing firm or a brokerage because retail brokers don't usually have huge exposure to a single equity. My bet is with the entire world suddenly memed into buying GME, settlement for retail brokers suddenly became very expensive and there wasn't an existing mechanism to pass on this cost down the chain, so halting orders was the only option on short notice.
- beezle 6y ago
  I said on another comment, brokers should have been raising margin reqs on these stocks the past few weeks as it became obvious this was a volatility nightmare in the making. That would have given them increased protection and dampened the enthusiasm. Also, I don't think any of these people crying foul consider that those who short stocks do so at constant peril of forced close outs because shares are no longer available to be borrowed. The notice involved can be minutes to hours.
- wonderwonder 6y ago
  Who was actually buying the shares once retail buys were halted? Was it the short hedge funds? If so, then was this not a conspiracy to allow them to cover their shorts and initiate new ones knowing the price was going to be artificially forced to lower?
- etcet 6y ago
  Due to the selling frenzy, GME is more volatile than ever but Robinhood is now allowing buys, so what has changed between this morning and now? It seems like the counterparty risk would be even higher than this morning?
  - saddlerustle 6y ago
equality_1138 6y ago
My take is that the stock was basically being manipulated by an angry mob. While I completely applaud their efforts and stand against the unfair advantage that institutional investors have, I can also see where their approach could trigger broader market instability. Let's assume it was a broad coalition that assessed the risk and decided extraordinary measures were in the public's interest.
- xeonoex 6y ago
  "Manipulated by an angry mob" is one way to look at it, but "unsophisticated investors attempting to short squeeze billion dollar hedge funds" is another.
  - equality_1138 6y ago
    Either way, there is a limit to how much unsophistication the market can tolerate and remain healthy.
wonderwonder 6y ago
Citadel

betterunix2 6y ago

In all likelihood the internal teams responsible for risk management and compliance all determined that this was likely criminal activity, and recommended trading restrictions until the SEC weighs in. Brokerages are typically over-cautious about this sort of thing because they do not want to invite additional scrutiny from the powers that be. The brokerages probably did not communicate these decisions to each other, they just all use similar logic and all arrived at similar conclusions. Those that did not make this decision probably did not observe suspicious trading patterns from their customers.

paxys 6y ago
There is zero chance they all independently came to the same conclusion at the exact same time. There has to be a bare minimum amount of coordination involved, which is likely illegal. Either that or they got an order from the SEC/White House.
- betterunix2 6y ago
  Financial companies all use the same logic to make these sorts of decisions, so yes, there is a very good chance that they independently came to the same conclusion at the same time.
- mlthoughts2018 6y ago
  It’s also not a clear conclusion even remotely at all. There’s nothing remotely illegal about retail investors coordinating together to profit from a short squeeze opportunity.
- wonderwonder 6y ago
  If they got orders from the SEC they would likely be shouting it from the roof tops by now in a desperate attempt to shore up their reputation.
  - paxys 6y ago
    Doesn't have to be an official order
Ericson2314 6y ago
Then they should have blocked all trading, not just buying. The benevolent story just doesn't hold up.
- deleted 6y ago
  [deleted]
- betterunix2 6y ago
  They blocked the opening of new positions. You can still buy if it results in a short position being closed. Pretty typical move, almost certainly done to protect themselves from scrutiny by the SEC and CFPB.
dpbriggs 6y ago
Why block buying and not selling? Why did they all come to the same conclusion at the same time?
- betterunix2 6y ago
  They did not block selling, they blocked opening new positions. You can buy if doing so closes a short position.
  - dpbriggs 6y ago
    And that's somehow fine? It's blatant protection for short positions. These brokers are hamming up the "we need to protect retail from volatility" narrative when they're clearly trying their best to stop their business partners from going bust. It's sickening.
    - betterunix2 6y ago
      More like they wanted to preempt possible sanctions from the SEC for failing to take action when they observed suspicious behavior by their customers. Let's be clear about a few things. Brokerages do not care about protecting retail investors, they only protect their customers when forced to do so by regulators. What brokerages do is protect themselves from liability, financial losses, and scrutiny. They have no problem screwing over their customers when it suits them. They will raise margin requirements and force customers to take a loss as soon as their risk models say that they should do so. They will restrict trading whenever it looks like there is a scam, simply because it wards off possible investigations into their business. What they can get in trouble for, and RH did get a slap on the wrists for already, is working against their customers' interests for the benefit of their business partners. One brokerage I could believe, but I doubt that half a dozen would all do it at the same time and with the same securities.
      - dpbriggs 6y ago
        That's great, but they should be halting trade of the stock all together if they really believed retailers were manipulating the stock. I can see the nice narrative of allowing retailers to sell ("capture gains"), but it's indefensible to only allow selling. That's _blatant_ market manipulation.
pfisch 6y ago
Except it is still ok to sell these stocks...ok bro...
ClumsyPilot 6y ago
they respond to 'likely criminal activity' with certain criminal activity?
- betterunix2 6y ago
  Nothing criminal about it, brokerages do this all the time.
  - dpbriggs 6y ago
    I'm genuinely curious: can you find examples of brokerages only allowing buying, or only allowing selling? I'm not talking about edge cases with margin calls.
    - betterunix2 6y ago
      https://ibkr.info/article/2892 https://ibkr.info/article/2892 https://us.etrade.com/l/f/disclosure-library/otc https://us.etrade.com/l/f/disclosure-library/otc Would you like more?
      - justupvoting 6y ago
        These are examples of specific, ahead-of-time rules for entire types of stocks, not a sudden, reactionary move against particular names.
      - dpbriggs 6y ago
        Keep them coming. I want other examples where it's appropriate for some brokers to restrict _buying_ but not selling, especially in the context of a short squeeze, with potential conflicts of interest. I understand that brokers can restrict trade on risky items as yes, it impacts their risk model. I'm failing to find justification for RH and others to restrict buying but not selling of GME. Your first link is for penny stocks, and the restrictions revolve around the usual pump-and-dump. You're allowed to go long, and can trade between days. Your second link is for OTC, and I fail to see how this is relevant to GME. GME is traded on formal exchanges, and brokers that haven't arbitrarily restricted buying aren't having any liquidity issues.

deleted 6y ago

[deleted]

theshrike79 6y ago

People started losing money, LOTS of money. Phone calls were made and they reached the decision to shut down trading everywhere they could. We'll see how it worked in the coming weeks.

psychlops 6y ago

They didn't. It was TD, Interactive Brokers, and Robinhood. Maybe more by now, but they acted alone. My guess is that market makers that these brokers sell orders to said no. Brokers make a lot of money selling retail orders to someone else.

sakopov 6y ago
It's anecdotal but ETrade, TD, Ally Financial all started blocking buy orders at seemingly the same time - yesterday morning shortly after market open. The reason I know this is because I was on the phone with a friend at 9am Central and neither him nor I were able to purchase $GME, $BB or $GMC (he's on Ally and I'm on Etrade). Around the same time I started seeing messages on social media that TD was also blocking traders. I think you're right that the order likely came from MMs and everyone followed through.
Avalaxy 6y ago
Trading212 was also halting trading.

Armisael16 6y ago

Most of the zero-commission brokerages sell their order flow to market makers. Those companies just decided they didn’t like what the retail investors were doing and stopped accepting buy orders on those stocks.

lamontcg 6y ago

The problem is that if big short sellers like Melvin Capital go under that their counterparties are the brokers that will be ultimately holding most of the bag. This is what I couldn't understand about what the endgame of this would have to be. Because you can't really have a situation where all the shares are bought up sending the shares to infinity. At some point something breaks. Someone has to pay money for those shares. That could be that retail investors bolt for the door just like a bubble popping and because its difficult to maintain steadiness when you're looking at huge gains that aren't realized. And that is what they thought would happen. What would be more reasonable would be to liquidate Melvin Capital and anyone stupid enough to invest in them and the holders of GME shares would become creditors against that bankruptcy proceeding somehow. SEC would have to manage that unwinding somehow. But the problem is that the clearinghouses like Citadel are counterparties to Melvin Capital and they've privately bailed them out, taken over their shorts and will now hugely profit by suspending trading and riding those short positions down. This now entirely makes sense to me as what was inevitable, because while WSB was trying to destroy Melvin Capital they didn't understand that the implications of that were going to be destroying the clearinghouses through counterparty risk. And they were never going to let that happen, so they shut it all down and will eat the SEC investigation. This is a very interesting outcome just due to the moral hazard it creates with shorting. It is also a very interesting outcome because a lot of "little guys" just learned an object lesson in what happens when it looks like you are beating the "big guys". They won't let that happen. There's going to be a lot of political rage as a result of this. We're going to have to make a decision in the next 10 years or so if we'd like to funnel that rage towards socialism or fascism, the status quo is going to continue to enrage people.

deleted 6y ago
[deleted]

saddlerustle 6y ago

There's three phases of a trade: execution (handled by a broker), clearing (sometimes handled by the broker, otherwise handled by clearing firms like apex clearing or jp morgan clearing among others) and settlement (almost always DTC for US equities). Clearing and settlement involve counterparty risk - if a brokerage can't hand over the money come settlement, the settlement firm may be on the hook. The risk of this is proportional to volatility. Due to high volatility, DTC increased its settlement costs. This isn't usually a big deal to a clearing firm or a brokerage because retail brokers don't usually have huge exposure to a single equity. My bet is with the entire world suddenly memed into buying GME, settlement for retail brokers suddenly became very expensive and there wasn't an existing mechanism to pass on this cost down the chain, so halting orders was the only option on short notice.

beezle 6y ago
I said on another comment, brokers should have been raising margin reqs on these stocks the past few weeks as it became obvious this was a volatility nightmare in the making. That would have given them increased protection and dampened the enthusiasm. Also, I don't think any of these people crying foul consider that those who short stocks do so at constant peril of forced close outs because shares are no longer available to be borrowed. The notice involved can be minutes to hours.
wonderwonder 6y ago
Who was actually buying the shares once retail buys were halted? Was it the short hedge funds? If so, then was this not a conspiracy to allow them to cover their shorts and initiate new ones knowing the price was going to be artificially forced to lower?
etcet 6y ago
Due to the selling frenzy, GME is more volatile than ever but Robinhood is now allowing buys, so what has changed between this morning and now? It seems like the counterparty risk would be even higher than this morning?
- saddlerustle 6y ago

equality_1138 6y ago

My take is that the stock was basically being manipulated by an angry mob. While I completely applaud their efforts and stand against the unfair advantage that institutional investors have, I can also see where their approach could trigger broader market instability. Let's assume it was a broad coalition that assessed the risk and decided extraordinary measures were in the public's interest.

xeonoex 6y ago
"Manipulated by an angry mob" is one way to look at it, but "unsophisticated investors attempting to short squeeze billion dollar hedge funds" is another.
- equality_1138 6y ago
  Either way, there is a limit to how much unsophistication the market can tolerate and remain healthy.

wonderwonder 6y ago

Citadel