Interactive Brokers Chairman Thomas Peterffy said the broker’s move to curb speculative name trading was to protect the market and the clearing firms that settle the trades.
“We are concerned about the integrity of the market and the clearing system,” Peterffy said on CNBC’s “Closing Bell” Thursday.
On Thursday, Interactive Brokers put options trading in liquidation on a handful of highly volatile stocks like GameStop, AMC Entertainment and Koss, which have amassed an army of retail investors looking for hedge funds to short on the names. The company also increased margin requirements, or how much money an investor using leverage and derivatives should have in their trading account after a share purchase, on certain securities.
“We are concerned about the ability of the market and clearing systems to continue to provide liquidity through the onslaught of orders. And we are concerned about the financial viability of intermediaries and clearing houses,” he added.
Clearing is the trusted transfer of securities and funds between the buyer and seller, an essential function on Wall Street. Some other online brokers are self-clearing, meaning they have their own clearing firm, while others rely on a third party to settle the trades. Robinhood, E-Trade, TD Ameritrade, Charles Schwab, and Vanguard are among those already clear.
Peterffy said Interactive Brokers was under no pressure from market makers to set parameters on stock and options trading.
“The broker stands between these clients and the clearing house,” says Peterffy. “So if some option holders make money, the clearinghouse has to give us the money to give it to our customers, while other option holders, sellers or buyers on their own side lose money, we have to collect money from them and send it to the clearing house. our customers can’t afford their losses, we have to hang our own money. “
Interactive Brokers has $ 10 billion in equity to cover these payments if needed, but Peterffy said he can’t say the same with confidence about other brokers.
Peterffy also called what was going on with GameStop’s stock this week “illegal” and “manipulation”. He said Interactive Brokers’ clients will be able to trade the speculative names once trading returns to “normal”.
Peterffy also said he doesn’t know if there are any big institutions on the tight side of GameStop’s massive rally.
“May they all be individuals, but I doubt that as this requires a lot of money,” said Peterffy.
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