Freetrade's relationship with Drivewealth, Point72, and GME Shorting

Hi,

I wanted to post here to get a reply from Freetrade regarding their clearing broker being owned by one of the biggest GME shorts in the market, and how this may raise questions regarding the integrity of consumers relationship with the US side of the Freetrade platform.

Freetrade has in the past revealed that Drivewealth is their US clearing broker, the middleman responsible for organising the last leg of share transactions. Drivewealth is Freetrades gatekeeper to US stocks and dictates what margin Freetrade must put up before the transaction is finalized. This may have implications on Freetrades apparent “FX volume” problem.

Drivewealth is not just any old clearing broker, they are a relatively small firm in comparison to the big clearing houses, and are largely owned by one company in particular, Point72. Point72 is a hedge fund that is very very heavily on the short side of $GME. This fact, among the shady legal past of Point72’s owner, Steve Cohen, who has been investigated and settled out of court for charges of racketeering and insider trading. It is not a large step to guess that Point72 would be very disadvantaged by Drivewealth enabling large volumes of $GME to be bought by individual investors.

Freetrade should probably address directly to its customers and investors how they feel about the relationship between their clearing broker and large hedge funds which take highly leveraged directional bets in the market.

Best Regards,

6 Likes

I think the FX problem was caused by Currencycloud / Barclays, not Drivewealth. If Drivewealth was the issue, then why did Revolut and Stake have no problems today?

4 Likes

I’m not a broker, but my guess would be that:

*Drivewealth increased margin requirements for their services to 100% for specific securities
*Barclays and CC view Drivewealth as an elevated risk (likelihood of Failure-to-Deliver increased as funds may go bankrupt) and so don’t want to hand over too much cash to them in one go.

Clearly specific US shares were not re enabled so the availability of USD doesn’t make much sense as I could still potentially purchase £1000 of a US stock at the end of the day, but not £100 of specific stocks. The FX explanation doesn’t seem to be the entire picture.

@jspen is correct, Freetrade handle Fx via a Fx partner, this allows Freetrade to set the exchange fee in house and take the profit. This wouldn’t happen if they were just making US trades direct to Drivewealth in GBP as far as im aware, if Drivewealth even offer to do the exchange as part of their service.

As pointed out as well drivewealth have also been executing orders, if you’re view was true and they had this huge conflict wouldn’t it have happened the other day? to everyone?

what margin? why would Barclays care?

volume. people wernt making a $100 GME trade, they were making 50,000 $100 GME trades all at once. you should read what freetrade posted about the situation

4 Likes

Volume doesn’t explain the difference between being not able to buy 1x GME versus but being able to buy 1x Alphabet/Amazon. Doesn’t seem like a straight up volume issue.

Clearing brokers require specific % of the transaction up front in order to carry out the transaction. They take risk by doing the trade before things are fully settled. Normally margin isn’t 100% of the transaction. Margin can be different for different securities depending of risk of transaction failing.

Can you please provide a link showing this is accurate?

Given that Freetrade doesn’t offer products that require the use of margin, how can this happen? The money gets out of the account when we buy. Yes it takes time to get to the destination but it’s money that is there

2 Likes

exactly this. There is more to the story than just fx

Our US partner is a productive, helpful partner in delivering high quality service for you.

They played no role in the FX issue yesterday whatsoever. The restriction on our US trades were suddenly and unexpectedly introduced by our FX partner and their bank, both UK companies.

Rest assured, our team is working through the weekend to improve the situation.

46 Likes

It would be wonderful if a member of the team explained exactly how $500 of AMZN can be bought whilst $100 of one of the infamous stocks could not (Friday at close this seemed to be the case). That does not seem like an issue with the volume of USD you hold, it seems like an issue of liquidity & margin requirements on the side of the clearinghouse or even internally within FT.

So can you confirm that Drivewealth did not/are not:

  • Increase margin requirements last week for specific securities
  • Have an effect on which US securities were available at the end of day Friday
  • Having liquidity problems

None of these problems are even necessarily a bad thing, as the risk to clearinghouses is high at the moment so those actions would be completely justified. It is not justifiable for Freetrade not to disclose this when asked however, as customers should be informed if issues like these arise.

I will still continue to support Freetrade in the future, and I certainly do not blame the company for market disruption in an unprecedented time. Hope the weekend is not too stressful.

Best Regards,

They did

1 Like

If you can provide a link to the part explaining this specifically I would be very grateful. I’m assuming you don’t mean the other main pinned threads which so far don’t satisfy this question.

Because if one person wants to buy the Amazon share and 100 people want to buy GME (at a guess), then the decision is sadly made if you are ordered to cut your volume by 18x. They cut the most popular including Tesla, AMC etc to allow the broadest offering.

1 Like

As we shared above, our US partner had no role in yesterday’s FX restriction.

We gradually enabled popular US stocks toward the end of the day, as we had more FX trades/minute ‘budget’ left in the context of the restriction. That’s why you saw Amazon as available.

See update 2 here: IMPORTANT: Why we had to limit the US market today (not our choice and we are working on it)

5 Likes