[sillysaurusx]

One level up, I think!

Think of it like a pyramid: the clearinghouse sits at the top, the brokers are in the middle, and the rest of us dirty peasants sit at the bottom where we belong.

The clearinghouse covers 95% of trades on Wall Street. So the clearinghouse issued a decree: "we are no longer able to support opening positions for GME, AMC, and KOSS."

Since most brokers use this clearinghouse, that means almost all brokers were forced to prevent customers from buying GME.

Everyone: pikachu face

The brokers have no choice. https://youtu.be/4RS4JIEVyXM?t=96

[rcxdude]

Not quite right. There's the DTC (which carries out 95% of the trades), then there's clearing houses (sometimes a seperate entity, sometimes part of the broker: the larger ones all do their own clearing. e.g. Robinhood has their own clearing house), then there's the brokers, then the traders. The DTC said 'we need 100% collateral on these trades' (probably because they viewed there being a significant risk that someone, somewhere, would not be able to pay up for the trades they're making in a big way), and then APEX clearing (which is the clearing house used by a lot of smaller brokers but not 95% of the market) said 'we can't support opening new positions' because their liquidity would be sucked up by the requirement, blocking most of the smaller brokers. Robinhood did similar for similar reasons independently of APEX, but some other brokers not using APEX could still trade (either because they had more cash on hand or because their customers weren't buying as much of affected stocks).

[blablabla123]

> The DTC said 'we need 100% collateral on these trades' (probably because they viewed there being a significant risk that someone, somewhere, would not be able to pay up for the trades they're making in a big way

This sounds like nonsense to me. After all the job of the Clearing House is to make sure the cash is balanced correctly after the transactions. Or realistically speaking a never ending chain of transactions, thus correctly moving the cash behind back and forth in time. It's the secret of the clearing house why they have no problems that their institutional customers have single digit equity ratios (speaking about Basel II/III/...) all the time while most individuals deal with 100% equity ratio. Maybe the more reasonable explanation is that they were overwhelmed by so many small transactions.

[valuearb]

GME was having 400% swings in a day, and being bought in a large part by brand new retail investors who had just opened accounts.

That’s a perfect storm for nonpayment issues.

[blablabla123]

> GME was having 400% swings in a day

Well, if that's what people want. At that point in time it's about buying, not selling.

> and being bought in a large part by brand new retail

> investors who had just opened accounts.

> That’s a perfect storm for nonpayment issues.

Ok but they need to go through some sort of payment processing that checks the credit rating. Even if the credit card is close to the limit, we are probably talking about amounts smaller than 1000 $. Anyone able to visit the Reddit homepage and installing the Robinhood app should have that amount of cash in hardware. FWIW, normal eCommerce payment processors deal with nonpayment issues in the sub percent range.

[valuearb]

To be more clear DTCC gets its collateral from the broker, ie Robinhood, not the actual clients. And the broker is not allowed to use client funds for collateral.

So the DTCC has to worry about Robinhood, and Robinhood has to worry about their clients.

[xorcist]

The Wikipedia article on DTC isn't very informative

What is the relationship between the NYSE and DTC?

[bdonlan]

The NYSE is one of the stock market centers in the US (yes, there's more than one). It's a place where you (usually virtually these days) go to agree with someone on the specifics of the trade - buy 100x GME at $420. The DTC is involved with what happens next - actually exchanging the stock and cash. In particular, they keep the records of which brokers hold how many shares of which stocks.