Mister Imperceptible wrote: ↑Sat Jan 30, 2021 7:51 pm
The exchanges allowed sales of the stock but not purchases. That is utterly absurd.
In fact, it's utterly normal practice.
Insofar you're trading on margin (e.g. because your cash deposit has not settled yet), positions will have a "margin to open" and a "margin to maintain". For a professional account (like what the broker is maintaining with their counterpart) this may be something like 10% and 5% respectively, perhaps lower. E.g. to put a $100 position on, they need to commit $10 of the
settled cash position they have with their counter part or regulatory organ. However, should that $100 position fall to ($100-$10)/(1-0.05)=$94.73, they'll get a "call to maintain" and have to
immediately (within 5 to 10 mins) either exit the position to reduce exposure or wire in more money.
If margin requirements suddenly go up because of volatility or volatility goes up on its own, there can be a lot of margin calls.
That absolute easiest way to deal with this on a mass scale (as opposed to calling customers directly or sending them a literal telegram delivered by courier for $50) is to change a few lines of code/hit a switch and prevent people from putting on more risk position. Hence, strike all buys on that platform. In a way that is way more benign albeit crude than what would happen to a hedge fund even if they would get the courtesy of a phone call.
An active trader really should be smart enough to have multiple redundancy both in terms of brokers, settled cash, and cable/phone lines.
So yeah, what happened was perfectly normal. It's not "market manipulation" when one or more brokers get out or prevent their customers from getting in.
https://en.wikipedia.org/wiki/Market_manipulation has a good list of them. In practice, with markets, this stuff usually runs "after the fact" because everything is always new in an adaptive system. It may be in retrospect that retail brokers shutting off access when a social media herd being almost the exclusive driver of a stock price might be deemed manipulation ... however, it could also be that the onus falls on those who are trading it up or the social platforms where the discussion is happening.
Back when I signed up for my first retail broker account I received a 30 page letter-sized folder with terms and conditions having to sign to the effect that I had read and understood it. I worry that many of these traders just hit the "OK" button on "ready player one?" after they downloaded an app and put in a credit card number or whatever. There's actually a lot of trader behavior that is illegal even as someone who hasn't read the SEC rulings might think they just found some "clever" way to make money.
Calls about "market manipulation" is a bit like reading the naive complaints/understanding of how the banking system worked when NIRP was introduced at the client level with people believing that banks literally held your savings in their vault or lend them out to other clients for the carry. What goes on under "the hood" is rather more complicated than that.
Seppia's twitter link was good.