The president of Interactive Brokers, Thomas Peterffy, said that the broker’s move to limit trading with speculative names was to protect the market and clearing companies that set up transactions.
“We are concerned about the integrity of the market and the compensation system,” Peterffy told CNBC’s “Closing Bell” on Thursday.
On Thursday, Interactive Brokers put liquidation options trading for a handful of highly volatile stocks, such as GameStop, AMC Entertainment and Koss, which have amassed an army of retail investors who want to crush unnamed hedge funds. The firm has also raised the margin requirements or how much money an investor who uses leverage and derivatives in the brokerage account must have after a purchase of shares for certain securities.
“We are concerned about the ability of the market and clearing systems, by attacking orders, to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and clearing houses,” he added.
Compensation is the reliable transfer of securities and funds between the buyer and the seller, an essential function on Wall Street. Some other online brokers self-compensate, which means they have their own clearing company, while others rely on a third party to delete transactions. Robinhood, E-Trade, TD Ameritrade, Charles Schwab and Vanguard are among those who are already self-clarifying.
Peterffy said Interactive Brokers has not received any pressure from market makers to put parameters on stock trading and options.
“The broker is between these clients and the clearing house,” said Peterffy. “So when some option holders make money, the clearing house has to give us the money to give to our customers, while other option holders, sellers or buyers on their part lose money, we have to raise money from them. and give him the house of compensation. If our customers can’t pay for their losses, we have to give them our money. “
Interactive Brokers has $ 10 billion in equity to cover these payments, if necessary, but Peterffy said he can’t say the same about other brokers with full confidence.
Peterffy also called “illegal” and “manipulation” what happened to the GameStop stock this week. He said that Interactive Brokers clients will be able to trade speculative names once the trading becomes “normal” again.
Peterffy also said he did not know if there were large institutions on the tight side of the massive GameStop rally.
“Let them all be just individuals, but I doubt that requires a lot of money,” Peterffy said.
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