Trading On margin

Schwab, TD Ameritrade Tightens Margin Requirements for AMC, GME



Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please review our website policy before making any financial decisions.

Robinhood, TD Ameritrade and Charles Schwab all restricted stock trading during January’s short tightening period. With lessons in volatility under his belt, TD Ameritrade and Schwab announced in advance that they will not restrict the buying or selling of AMC and GME, but there are some restrictions to consider.

Hedge funds lost at least $ 12 billion on bets against GME and AMC

Animosity towards Wall Street hedge funds is a powerful force that AMC Entertainment (AMC) and GameStop (GME) have harnessed. In early June, retail traders gained 80% of AMC’s shares, prompting the movie theater chain to develop AMC Investor Connect to further strengthen the relationship. In total, this quarter alone, AMC raised $ 1.2 billion in capital.

Likewise, GameStop raised $ 1.13 billion last week, still benefiting from more than 900% of shares valued since the start of the year. However, anyone can guess if AMC and GME will maintain their existing valuations in a few years as they come up against their deadly enemy – a transition from physical content delivery to digital content delivery.

The digital space is filled with Steam, Amazon, Disney, and Epic Games, to name just the few veterans of high powered e-commerce. Others claim there is no experience like physically going to the movies or visiting the local GameStop to join other players. After more than a year of economic lockdowns in several regions, many say it is difficult to discuss with them.

Meanwhile, AMC and GME have held relatively stable over the past month, with only GME experiencing a sharp 27% drop from June 9.e to June 10e after unveiling its share offering program on the market.

GME and AMC prices change in June 2021, source: Yahoo Finance

Nonetheless, such a drop in prices has not reassured short sellers, who have so far accumulated at least $ 12 billion in losses – about $ 7.3 billion in bets against GME and $ 4.5 billion against AMC – according to data from S3 Partners. Last week the the first hedge fund kicked the proverbial bucket – London-based White Square Capital – shutting down operations due to ‘oversupply of capital’ meaning inflexible retail traders.

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Schwab and TD Ameritrade Follow NSCC Risk Spread Rule

This summer, everyone is sticking together and preparing for the fallout from the big short-squeeze. There are other so-called memes actions involved, but the main focus is on GME and AMC, as has been the case since the Showdown began. Last week marked the culmination of this regulatory readiness, with NSCC (a subsidiary of DTCC) implementing a new rule – SR-NSCC-2021-002 – to verify member deposits on an intraday basis instead of monthly. .

It was predictable that the brokerages would follow suit, trying to minimize their risk by adjusting the margin requirements for GME and AMC. Interestingly, Charles Schwab Investment Management is ranked fourth as an institutional player in GME, but only at 1.41%. The first rank belongs to none other than BlackRock at 12.02%.

Explanation of Updated Schwab and TD Ameritrade Margin Rules

Schwab

(AMC)

  • 100% margin requirement for long positions.
  • 200% margin requirement for short positions.
  • Long calls, long puts, covered calls, writing naked calls and writing short put options are all permitted provided sufficient funds are available to margin requirements.

(GME)

  • 100% margin requirement for long positions.
  • 300% margin requirement for short positions.
  • Selling naked calls is prohibited.

TD Ameritrade

TD Ameritrade is more generous with a 100% margin requirement for all stocks, but also prohibits short selling on GME stocks in addition to prohibiting custom spreads. The authorized standard spread orders are:

Vertical, back / ratio, calendar, diagonal, overlap, constriction, covered butt, collar, butterfly, combo, condor, iron condor, vertical roll, collar with butt, double diagonal and double calendar. “

TD Ameritrade is giving itself leeway to change the rules on the fly, noting that it may put more requirements in place on AMC and GME which expire on July 2.

These heightened demands and reserved language clearly suggest that short selling these stocks poses extreme risk. Keep in mind that with margin trading, traders are buying stocks that they cannot afford at the moment. Instead, the broker lends them the money for the shares while keeping them as collateral.

Hedge funds would like to distract retail traders from the two focal stocks – GME and AMC. Have you been involved in short selling other stocks? Let us know in the comments below.

About the Author

Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.



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