Robinhood, the free trading app facilitating many of the transactions in these short squeezes, appeared to be in trouble with a lack of liquidity for the second time in less than 12 months.
When volatility increases so do margin requirements. The central Wall Street clearinghouse demands more cash to act as collateral when risk is higher.
Robinhood defended its use of the credit lines and denied there were ever any liquidity issues.
Stock trades typically settle days after the trades are recorded in the individual trader’s account. During the settlement time, brokers must provide collateral for the shares in the form of cash.
On Thursday, the Depository Trust & Clearing Corp., which is the main clearinghouse for Wall Street, said it had increased collateral requirement industry-wide by $7.5 billion, an increase of nearly 30% from the previous day.
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