Reddit Stock Mayhem ‘Generated Substantial Risk’ for Brokers

Extreme volatility in stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. “generated substantial risk” for brokerages, imposing stricter requirements on the firms, according to Wall Street clearinghouse DTCC.

“When volatility increases, portfolio margin requirements increase too,” the Depositary Trust & Clearing Corp. said Thursday in an emailed statement.

Wild trading this week was driven by traders from a Reddit forum, who joined forces to drive up shares of several heavily shorted stocks, causing billions of dollars of losses for hedge funds.

Firms including Robinhood Markets, Morgan Stanley’s E*Trade and Interactive Brokers Group Inc. were among those to curtail trading in some of the Reddit-fueled names.

In a blog post, Robinhood linked its decision to impose the trading restrictions to the increased requirements from the clearinghouse.

“These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today,” Robinhood said.

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