This is a breaking news story. Please check back for updates.
Interactive Brokers chairman Thomas Peterffy said the broker’s move to curb trading in speculative names was to safeguard the market and the clearing firms that settle the trades.
“We are worried about the integrity of the marketplace and the clearing system,” Peterffy said on CNBC’s “Closing Bell” on Thursday.
On Thursday, Interactive Brokers put option trading into liquidation on a handful of highly volatile stocks like GameStop, AMC Entertainment and Koss. The firm also raised margin requirements, or how much money an investor using leverage and derivatives must have in their brokerage account after a stock purchase, on certain securities.
“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,” he added.
Clearing is the trusted transfer of securities and funds between the buyer and seller, an essential function on Wall Street. Some other online brokers are self-clearing, meaning that they have their own clearing firm, while others rely on a third party to clear the transactions. Robinhood, E-Trade, TD Ameritrade, Charles Schwab and Vanguard are among those that already self-clear.
“The broker stands between these customers and the clearing house,” said Peterffy. “So when some option holders make money, the clearing house has to give us the money to give it to our customers, while other option holders, sellers or buyers on their own side lose money we have to collect money from them and give it to the clearing house. If our customers are unable to pay for their loses we have to put up our own money.”
Interactive Brokers has $10 billion in equity cover these payments if need be, but Peterffy said he can’t say the same about other brokers with full confidence.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.