Anger from all sides as Interactive Brokers, others restrict trading

GREENWICH — Interactive Brokers Group and other brokerages are imposing new restrictions on their clients’ trading of stocks and options in response to the frenzy surrounding companies such as videogame retailer GameStop — moves that have angered customers and caught the attention of lawmakers on both sides of the aisle.

The changes show the growing impact of market volatility that has been sparked in large part by investors mobilized on social media networks such as Reddit to catalyze trading surges — and ensuing jumps in prices — for stocks such as GameStop’s that had been “shorted” by investment firms that had anticipated declining share values. At the same time, the fallout has ramped up pressure on industry powerhouses such as Stamfordbased hedge fund Point72, which have been criticized for allegedly contributing to the upheaval.

“It happens in the history of the marketplace, this type of cycle,” said Osman Kilic, chairman of the finance department at Quinnipiac University. “It’s going to end, and some people are going to get hurt. That’s the nature of the ‘casino’ mentality.”

Brokerages take action

Greenwich-based Interactive Brokers announced Thursday that it would only allow “liquidation” — a reference to selling — for options of GameStop, movie theater giant AMC Entertainment, software company BlackBerry, fashion retailer Express and consumerelectronics specialist Koss “due to the extraordinary volatility in the markets.” Options represent contracts that give buyers the right to buy or sell shares at specific prices by certain dates.

“We are worried about the integrity of the marketplace and the clearing system,” Interactive Brokers founder and Chairman Thomas Peterffy said on CNBC’s “Closing Bell” Thursday.“We are concerned about the ability of the market and the clearing systems, through the onslaught of orders, to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and the clearing houses.”

In addition, Interactive said that clients’ long stock positions will require 100 percent margin and short stock positions will require 300 percent margin “until further notice.” Margin requirements relate to criteria such as customers’ account deposits and equity.

Other leading brokerages such as Charles Schwab and Robinhood have announced similar restrictions.

Those new regulations contributed to plunging prices. GameStop, for instance, saw its shares plummet Thursday by 44 percent, to about $194. In contrast, they had rocketed 135 percent on Wednesday.

Interactive Brokers’ own shares closed Thursday at nearly $64, up 0.6 percent from their Wednesday finish.

The markets’ erratic activity comes during a time of precipitous growth for Interactive Brokers, the No. 862 company on last year’s Fortune 500 list. It surpassed 1 million customer accounts late last year, marking a 50 percent yearover-year increase.

Outcry over new rules

Many Interactive Brokers and Robinhood clients vented on social media about the changes. A Robinhood user went even further by filing a class-action lawsuit.

“What we do with our own money is our business, not yours,” one Twitter user, @LongLeaps, said in response to a tweet sent from Interactive Brokers’ official account about the regulations. “Margins requirements is one thing — babysitting our cash accounts is another. Unacceptable.”

Some lawmakers, including U.S. Rep. Alexandria Ocasio-Cortez, DN.Y., also objected to the new restrictions.

“This is unacceptable. We know need to know more about (Robinhood)’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they sit,” Ocasio-Cortez, a member of the House Committee on Financial Services, tweeted. “I’d support a hearing if necessary.”

She added, “inquiries into freezes should not be limited solely” to Robinhood.

“Fully agree,” U.S. Sen. Ted Cruz, R-Texas, tweeted in response.