GameStop shares surged more than 1500 per cent last week as an army of retail day traders on Reddit forum WallStreetBets rushed to buy shares in order to create a “short squeeze” against major US hedge funds that had bet against the struggling company’s share price.
“To be clear, this is not a decision Stake has made. As DriveWealth is our broker-dealer, we can only reflect the securities they make available. As such, we are unable to confirm when this may change,” it said in a statement on Tuesday evening.
Trading platform Robinhood came under fire last week after it also stopped its users from buying more GameStop shares and Stake copped flack from users on Twitter after the announcement.
“Regardless of what your broker-dealer stipulates, or whether it is due to increased capital requirements, the fact that you are halting trading on those securities right now, places your platform in the same rubbish bin as Robinhood. Appalling,” tweeted one user.
Brokers are required to provide cash or capital guarantees to ensure funds are available through the settlement process. It is usually about 10 to 15 per cent of a trade’s value but can vary significantly based on stock volatility.
In the case of GameStop, AMC and Nokia the required capital guarantee was increased by 250 per cent from previous levels.
“DriveWealth have decided not to take on the large capital risk that comes with this significant increase. We’ll update you if this changes,” Stake said.
The shock news came after its share trading platform survived a major test on Monday evening as it dealt with an unprecedented volume of transactions that has seen more than $1 billion worth of US stocks traded on its platform in just over a month.
Stake said its platform was “healthy” despite more than 54,000 trades being executed through its platform which suffered service problems last week amid the global trading frenzy around stocks like GameStop.
“There were some isolated latency issues to downstream partners feeling some strain from the record-breaking volumes we’re seeing in the markets,” said chief executive Matt Leibowitz of Monday’s trading performance.
He said Stake worked through the weekend to try and fix performance issues and deal with the incredible surge in trading activity that saw $US813 million ($1 billion) worth of stocks traded through the platform in the first weeks of the new year.
More than 185,000 trades were executed through the platform in the last week alone, according to Stake.
Meanwhile, the corporate regulator will not bring forward a ban on high leverage products that are fuelling price spikes in some stocks and commodities despite individual brokers moving to limit some types of investment products due to the retail shareholder frenzy.
The Australian Securities and Investments Commission confirmed to The Age and The Sydney Morning Herald it was not intending to bring forward the restrictions on the leverage allowable for contracts for difference. The restrictions are set to begin on March 29.
Popular online trading platforms IG Markets and other brokers have moved to limit some trades following the immense volatility in recent days.
Stake is one of many brokers that have struggled under the unprecedented volume of transactions from customers. Major US brokers such as Charles Schwab, Vanguard Group and Fidelity Investments also reported service disruptions.
The incredible volatility has provided an opportunity for other Australian investors. Forager Funds more than doubled its money on US retailer Bed, Bath & Beyond in just 10 days as hedge funds caught by the GameStop “short squeeze” were forced to close their short positions on the struggling company.
In a blogpost on Tuesday, Forager’s Gareth Brown emphasised that “this is a very, very unusual market and probably won’t last very long”.
He said other Forager positions have also worked out “blisteringly quickly”. “This is a strange market. We feel more comfortable when an investment thesis takes a year or two to play out,” he said.
Not everyone has caught the gravy train.
David Paradice’s funds management firm Paradice Investment Management missed out on a potential $1 billion windfall after selling shares in GameStop just before a day trader revolt led to an incredible surge in the stock.
“It’s been crazy to watch, it’s also been very interesting,” Mr Paradice told The Age and The Sydney Morning Herald. “It really is madness.”
with Sarah Danckert
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Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.