Transcript

Hi again, this is Viram from Vested. A lot of us have heard about what happened in stocks like GameStop and AMC. We know how the retail investors battled against the hedge funds that had short positions in these stocks.

But today, we wanted to talk about why certain brokers, including our partner Drivewealth, had to halt buying in these securities, something which is a very rare phenomenon.

A lot of people thought that the brokers halted this buying because they wanted to side with the hedge funds, but that is not true. The broker had to stop buying because their clearing firm told them to do so. Now the clearing firm had to instruct the brokers because the DTC, which is the primary settlement company in the US, overnight increased the capital requirement from these clearing firms by up to 250 percent. That means that overnight these clearing houses had to scramble to arrange for billions of dollars.

So, why did the DTC suddenly increase the capital requirements?

Well, this was to make sure that the brokers operate within the confines of their balance sheet. In volatile markets, deposit requirements can vary significantly and depend on different factors such as:

  1. The imbalance between buys and sells offer of a security
  2. The volatility of a security
  3. And the volume of that security being traded

As we all know with stocks like GameStop and AMC all of these factors were out of the ordinary.

So that was a quick download on why brokers faced widespread disruption over the last couple of weeks.

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Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.

This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.

This video is meant to be informative and not to be taken as an investment advice and may contain certain “forward-looking statements” which may be identified by the use of such words as “believe”, “expect”, “anticipate”, “should”, “planned”, “estimated”, “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success of or lack of success of particular investments (and may include such words as “crash” or “collapse”.) All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.