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Halting of stock purchases

On January 28, Robinhood halted purchases of GameStop, AMC Theatres, BlackBerry Limited, Nokia Corporation, and other volatile stocks from its trading platform; customers could no longer open new positions in the stock, although they could still close them.[48] Other brokerages soon followed suit. Many traders were furious, and called for class-action lawsuits in multiple popular Reddit posts.[49] After the markets closed, Robinhood announced it would begin to allow "limited buys" of the affected securities starting the following day, although it was unclear what "limited buys" entailed.[50] Trading platforms such as UK-based Trading212 and Israel-based eToro blocked buys of GameStop and other stock while continuing to allow sales.[51] Webull halted buy orders for stocks affected by the squeeze,[52] but soon thereafter allowed orders to continue.[53] Anthony Denier, the CEO of Webull, stated that increased collateral requirements for their clearing house meant Webull themselves were restricted from opening new positions.[54] Some users alleged that Robinhood was selling shares without consent; Robinhood denied these allegations.[55]

Several brokerage firms, including Robinhood, stated on January 29 that the restrictions were the result of clearing houses raising the required collateral for executing trades.[56][57][58] Because there is a two-day lag between the moment when investors purchase a security and the moment cash and securities are actually exchanged, brokerage firms have to post collateral at clearing houses to guarantee the proper settlement of their clients' orders.[59][57][60] Clearing houses include the Depository Trust & Clearing Corporation (DTCC) for equities and the Options Clearing Corporation (OCC) for options.[56] Clearing houses must have enough collateral on hand to settle a member's outstanding transactions in the event any particular member firm fails—to prevent cascading failures of other members—and can demand additional collateral (i.e., margin calls) from members if market volatility starts to increase.[61][60] Brokerage firms claimed that the increased collateral could not be provided in time, and, as a result, trading had to be halted.[56][57][58] The DTCC, for instance, increased the total industrywide collateral requirements from $26 billion to $33.5 billion,[62] noting that the large trading volumes in specific stocks "generated substantial risk exposures at firms that clear these trades [...] particularly if the clearing member or its clients are predominantly on one side of the market".[62] On January 29, it was reported that Robinhood had raised an additional $1 billion to protect the company from the financial pressure placed by the increased interest in particular stocks and meet the collateral requirements of clearing houses.[63][64]

As of January 29, Robinhood was still imposing limits on the trading of GameStop, AMC, and Blackberry stocks.[62] On January 30, Robinhood announced it had increased the restrictions from the sale of 13 securities to 50, including companies such as Rolls-Royce Holdings and Starbucks Corporation.[65] However, on January 31, Robinhood announced it had removed several of these restrictions and would only limit the sale of eight securities.[66]