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Ameritrade restricts trading of Gamestop:

"In the interest of mitigating risk for our company and clients, we have put in place several restrictions on some transactions in $GME [GameStop], $AMC [AMC Theaters] and other securities," reads the TD Ameritrade message.

Why would a financial institution prevent their clients from trading a specific security?

It would out of place for the financial institution to forcefully obligate their clients to follow some risk mitigation guideline, so I'm surprised that "mitigating risk for our clients" is one of the two given reasons. Regarding the second given reason, how does that mitigate the risk for the company? Too many customers getting margin called at once?

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    "It would out of place for the financial institution to forcefully obligate their clients to follow some risk mitigation guideline," - and I am quite sure noone in the USA would ever sue their broker fbecause he got f**** in a market like that one we had here. Hm, did happen, does happen, so institutions DO have a responsibility.
    – TomTom
    Jan 28 at 10:18
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    Currently trending answer: the large companies which hold GameStop short positions paid them a large amount of money to do so.
    – user253751
    Jan 28 at 18:28
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    @jamesqf So you're saying if I see a GME meme and buy it for the lols, I'm suddently part of a criminal conspiracy? Jan 28 at 19:42
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    Looks like Fidelity still lets you trade $GME. Goes to show which brokers are truly trustworthy. Jan 28 at 20:14
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    @Allure except not all market agents are equal. RobinHood and TDAmeritrade blocked out retail traders. Institutional traders were free to trade. The market was not closed at all. By blocking one class of traders, the market was no longer free
    – Dancrumb
    Jan 29 at 0:09
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Your quoted paragraph says it all. The restrictions are intended to mitigate risk for the brokerage firm and for the clients.

There's a long history of risk mitigation by the SEC as well as brokers. Some examples:

  • Before the 1929 crash, margin was 10%. You could buy stocks for 10 cents on the dollar. Reg T was subsequently established, requiring that traders must post at least 50% of the price of shares for a margin purchase.

  • The Securities Exchange Act of 1934 created the Uptick Rule for shorting. It was eliminated in 2007 and was reimplemented as the Alternate Uptick Rule in 2010

  • Brokers are allowed to require higher margin than Reg T allows

  • After the crash of 1987, circuit breakers were implemented to stabilize the financial markets

  • About the time that Lehman Brothers went under in 2008, for a few weeks, the SEC banned the shorting of about 800 financial companies (the UK did so as well)

  • Higher margin is required for trading leveraged ETFs, Bitcoin, etc.

  • Brokers are not required to offer trading in all securities (options, futures, Bitcoin, etc.)

It is not unusual for brokers to limit access to volatile securities to more sophisticated traders who have well funded accounts that can cover potentially higher risk trading.

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    @BobBaerker We're talking about plain stock purchases here though. You can't go into negative equity just by owning stocks. If I give RH $300 or whatever the current price is, and tell them to buy 1 stock, there should zero risk in it for them. (My risk is $300, and they may choose to warn me about it)
    – user253751
    Jan 28 at 19:28
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    @BobBaerker Okay... But the brokers have stopped you from even buying some of these stocks with cash. No margin involved. The problem is the brokers seems to be trying to stop the short squeeze, not trying to prevent people from getting squeezed.
    – Matt
    Jan 28 at 20:27
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    I read that certain brokers just stopped allowing buy orders, period, for certain stocks like GME today. We're not talking about margin risk. You couldn't even buy them with 100% cash. There is no risk to a broker if someone wants to buy with 100% cash. Obviously there's risk to the buyer, but still, all stocks have risk.
    – 7529
    Jan 28 at 20:41
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    RobinHood is being reported to have force-sold fully paid-up shares coincidentally at the low point of the day. It's not their customers' risk they're managing. Jan 28 at 22:17
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    All of this is about margins and risk mitigation, but RobinHood was preventing simple buys and force selling fully paid up positions. This answer is misleading and borderline irrelevant
    – Dancrumb
    Jan 28 at 23:59
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The reason they stopped is because Citadel and Melvin capital and others are going to lose to a bunch of Reddit posters and Robinhood traders. People who own the market aren't going to allow that to happen.

Like that movie with Eddie Murphy and cornering orange juice, except Eddie Murphy loses in real life cause can't have the little guy winning a rigged game.

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    Yep, most likely Citadel and Melvin called-in some favors with their golf buddies at the SEC, who then pressured Robinhood and the like to stop the trades. We'll probably see a movie about this in the next few years. Jan 28 at 18:29
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    This is a dangerous supposition that, if proven true, would be illegal. I am not naive enough to think that every injustice in the world is resolved, but this is very much in the spotlight, far increasing the risk of impropriety. The notion as well that 'the people who own the market' would act outside their own self-interest [Citadel, to my understanding, holds no short positions on GME as a result of the backstop provided to Melvin Capital], is silly conspiracy stuff. Jan 28 at 18:58
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    Downvoted for lack of evidence. Will rescind if you add a substantive citation.
    – RonJohn
    Jan 28 at 19:45
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    Robinhood already had an arrangement with Citadel.
    – 7529
    Jan 28 at 20:31
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    I thought Stack Exchange had standards for answers. What is this? "People who own the market"? This answer is basically: "Because the man wants to put you down". Surely that's not acceptable here.
    – Clay07g
    Jan 28 at 23:19
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There's a whole Wikipedia article on this. To quote:

A trading curb (typically known as a circuit breaker in Wall Street parlance) is a financial regulatory instrument that is in place to prevent stock market crashes from occurring, and is implemented by the relevant stock exchange organization. Since their inception, circuit breakers have been modified to prevent both speculative gains and dramatic losses within a small time frame. When triggered, circuit breakers either stop trading for a small amount of time or close trading early in order to allow accurate information to flow among market makers and for institutional traders to assess their positions and make rational decisions.

In the past, stock market crashes have occurred faster than people can think, which leads to a positive feedback effect not dissimilar to short squeezes. Heavy volatility is usually a sign that the stock's investors are not being rational. Restricting trading is meant to give people time to think on what they actually want to do.

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    It's not the exchanges that stopped buying, it's some retail brokers that stopped cash buying of certain equities.
    – Bill
    Jan 29 at 0:21
  • Trading wasn't halted. Retail investors were being blocked from buying shares, even with cash. Hedge funds continued trading as normal.
    – JS Lavertu
    Jan 29 at 16:38

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