The Revolut & Drivewealth collaboration is the latest to join the brokers' party that decided to ban the buys of Texas-based video game retailer Gamestop (NYSE: GME) and movie theater chain AMC Entertainments (NYSE: AMC). Revolut has started sending the following email to Revolut customers as of yesterday.
New Jersey-based DriveWealth is a significant partner to many retail trading apps and challenger banks globally, including Revolut, MoneyLion, and Unifimoney, among others. The firm helps these platforms navigate the brokerage business's complexities and provides them with popular investment products, such as no-commission trades and fractional shares.
“From today, we will only be able to facilitate the selling of GameStop and AMC Entertainment stocks for the time being. Unfortunately, our broker-dealer in the US, DriveWealth, can no longer offer Buys on these stocks due to increased capital requirements set by the Depository Trust Company (DTC) in the US.
What does this mean for me?
You can only sell out your existing holdings in these stocks. Any outstanding buy orders on these two symbols made after Monday’s (1 February) close will automatically be canceled before the market open on February 2, 2021.
None of our other stocks are affected at this time and are available to trade as normal.
For customers with no holdings in these two stocks, neither GME nor AMC will appear when searched. This is standard practice when a position moves to sell only, as we don't want to show you stocks you’re not able to buy at that time. As soon as they become available to buy again, you’ll be able to see them in the app.
Why is this happening?
When a stock is traded, it takes two days for the proceeds to go from the broker to the clearinghouse. This is known as the T+2 settlement. Within this time, the clearinghouse requires the broker to front cash or capital guarantees to ensure funds are available through the settlement process.
The required amount of capital is usually around 10-15% of the value of a security’s holdings on a broker’s books. However, this percentage can vary based on stock volatility. In GME and AMC's case, the DTC has enforced an increase of capital requirements by 250% upon DriveWealth’s clearing partners.
This increase means that DriveWealth is now obligated to restrict trading in GME and AMC, as each stock has its capital requirement rather than a general broker requirement.
When will they be available again to buy?
This is not a decision Revolut has made, merely one that we are obligated to carry out. We monitor the situation very closely and update you when our partner, DriveWealth, re-enables Buys for GME and AMC. We apologize for any inconvenience caused.”
However, it’s not clear if DriveWealth has also banned Nokia, Blackberry, and other stocks that benefited from an extraordinary rise in their value, spurred by social media users on Reddit in what began as a move against hedge fund managers.
Almost all major retail apps have placed restrictions on trading in these shares, which sparked allegations involving conspiracy theories, political intervention, and hedge funds influenced trading platforms to stop the rout.
GameStop started January trading at around $20 per share and is now sitting at around $85 per share. It traded as high as $469 last week. The meteoric rise in game retailers' share price forced Wall Street institutions and other short betters to buy back the stocks at a higher price, effectively sitting on billions of dollars in losses.
But with more trading platforms banning traders from buying these stocks, Reddit users who congregated on WallStreetBets to buy into the stock are now losing out too.
Last week, the US Securities and Exchange Commission said it’s probing recent dramatic price run-ups in heavily shorted stocks, promoted by retail investors’ groups on Reddit’s boards.
The SEC is parsing the activity to uncover market instability and see if there is deliberate manipulation or fraudulent intent more broadly on stock markets.
Additionally, the agency investigates restrictions introduced by stock apps and online platforms, which banned retail investors from buying shares in red-hot GameStop and several other troubled companies.