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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 clear
by 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 agoI 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 agoWho 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 agoDue 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 agoI'm guessing with politicians starting to take advantage of the outrage, someone in the chain decided it's better to eat the cost.