Interactive Brokers Founder Thomas Peterffy Imposed Curbs on Companies to Protect Market Integrity
Posted on 01/29/2021
In a Bloomberg TV interview, Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc. (ticker: IBKR), explained the rationale behind his brokerage firm’s decision to put restrictions on investing in companies like GameStop (ticker: GME) and the other associated companies linked to Wallstreetbets reddit forum. Interactive Brokers earlier Thursday said that options trading for companies including $AMC, BlackBerry $BB, Express $EXPR, GameStop $GME, and Koss Corp. would be limited to liquidations, or closing out positions. Interactive Brokers cited “extraordinary volatility in the markets” in a blog post, and said “long stock positions will require 100% margin and short stock positions will require 300% margin until further notice.”
Peterffy is concerned that a so-called short squeeze can go on indefinitely unless someone intervenes and can take down the entire system.
In the TV interview, Peterffy worried about the integrity of the market. There is concern that some brokers will not be able to pay, especially brokers with not enough equity. The trades could go on and on for a long time and generate more losses. FINRA already contacted Interactive Brokers. They believed the short squeeze would keep “going and going.” So they had to “stop the losses.” The question is which counterparties would be losing the money or not paying up?
Roughly Transcribed (Peterffy): “If the sellers cannot pay, the brokers have to pay the winners. Bunch of smaller brokers in this game who do not have enough equity. If they blow up the clearinghouse does not get paid. If the clearing house does not get paid, it has to take over the positions and has to liquidate them. Larger brokers (remaining brokers) can fail as they have to make good on the clearinghouses’ losses.”
VIDEO LINK: https://www.bloomberg.com/news/videos/2021-01-28/billionaire-peterffy-worried-about-integrity-of-markets-video
