So much for the “rigged” market, the supposed conspiracy to fleece Reddit traders, and other nonsense spouted about last week’s stock market ructions involving GameStop and other companies. It turns out the controversy was essentially about a larger than normal clearinghouse call for capital.
As David Battan explains nearby, that’s almost certainly the story behind the decision by Robinhood, the internet trading app, to limit trades in certain stocks for a time late last week. Politicians like Sen. Ted Cruz and bar-stool financial analysts claimed to see a plot by the new Robber Barons.
The reality is more prosaic. Robinhood and other brokers were deluged by traders looking to invest in GameStop and other shares, often with options contracts that can increase leverage and trading risk. A clearinghouse that processes and settles trades watched the volatile trading and demanded more collateral to cope with potential losses.
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