TL:DR: Our US execution partner has restricted buys on $GME, $AMC, and $NOK today.
We are sorry for the inconvenience. As soon as they can enable buys, we will notify you.
For more details on this, please read below.
The DTC - the Depository Trust Company in New York, the clearing house for US shares - has made the decision overnight to raise capital requirements by more than 250%.
What does this mean?
Our US execution partner has been forced to restrict $AMC, $GME and $NOK to sell orders only.
If you have placed a buy order overnight, these will be cancelled by 3 PM today.
To be clear, this is not a decision we at Freetrade have made.
As a result of the extremely high margin requirements, our US execution partner has taken the difficult decision to not support these stocks at this time.
US regulation requires clearing houses to hold cash on hand from brokers, known as collateral or margin. The amount of collateral required is determined by a variety of factors including the volatility of the individual shares that the clearing house holds on behalf of a brokers’ clients.
If shares are volatile, the amount of collateral that is required can change significantly.
Our US execution partner is exploring alternative solutions, but none of them can be made operational in time for today’s trading day.
We want to give you full access to the markets as soon as possible. We will provide updates as soon as we have them.
UPDATE 1: While we are waiting for any updates, we wanted to give some more detail on why our US execution partner, had to take the difficult decision to restrict trading on the above companies.
To understand why this was done, we want to explain some of what happens after you hit ‘buy’ on your app.
When you buy or sell a stock, it takes two working days for the cash to be transferred from buyer to seller. This is why you see ‘unsettled cash’ in the Freetrade app for two working days after you sell shares.
Sitting in between the two parties to the transaction is often an intermediary known as the clearing house.
Clearing houses facilitate transactions between buyers and sellers in the stock market.
In doing so, they have to take on counterparty risk - the risk that one party won’t deliver the money needed to complete the transaction.
To reduce the likelihood of this happening, clearing houses will make broker-dealers such as the clearing broker of our US execution partner put down a lump sum of cash. The collateral, often referred to as ‘margin’, is there to make sure they pay.
Normally, this isn’t a problem.
Due to the volatility in the given stocks in the last few days, Depository Trust Company (DTC) advised clearing brokers last night that margin requirements for GameStop, AMC and Nokia will be raised, causing the collateral requirement to increase by 250%.
Our US execution partner is looking into ways to get these stocks back online.
In the meantime, please accept our apologies for this inconvenience. We will update you as soon as we hear from them.
UPDATE 2: We are pleased to say that our US execution partner has just confirmed that buys have now been enabled for $GME, $AMC, and $NOK.
Please remember that there are additional risks associated with investing in such market conditions and that your capital is at risk.