Interactive Brokers chairman Thomas Peterffy said the broker’s measure to curb speculative name trading was to safeguard the market and clearing companies that settle transactions.
“We are concerned about market integrity and the compensation system,” Peterffy told CNBC’s “Closing Bell” on Thursday.
On Thursday, Interactive Brokers liquidated options trading for a handful of highly volatile stocks such as GameStop, AMC Entertainment and Koss, which have secured an army of retail investors seeking to crush unnamed hedge funds. The firm also raised the margin requirements, or the amount of money an investor must use that uses leverage and derivatives in its brokerage account after buying a share, in certain securities.
“We are concerned about the ability of the market and clearing systems, through the attack on orders, to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and clearing houses,” he added.
Compensation is the reliable transfer of securities and funds between the buyer and the seller, an essential function on Wall Street. Some other online brokers self-compensate, meaning they have their own clearing company, while others rely on a third party to settle transactions. Robinhood, E-Trade, TD Ameritrade, Charles Schwab and Vanguard are among those already made clear.
Peterffy said interactive brokers received no pressure from market makers to set parameters in stock and options trading.
“The corridor is between these customers and the clearing house,” Peterffy said. “So when some option holders make money, the clearing house has to give us the money to give to our customers, while other option holders, sellers or buyers who in turn lose money, we have to raise money and give it to If our customers can’t afford the losses, we have to put in our own money. ”
Interactive Brokers has $ 10 billion in equity to cover those payments if needed, but Peterffy said he can’t say the same about other brokers with full confidence.
Peterffy also called “illegal” and “manipulation” what has happened to GameStop’s actions this week. He said Interactive Brokers clients will be able to change speculative names once trading is “normalized” again.
Peterffy also said he doesn’t know if there are large institutions next to GameStop’s massive concentration.
“Let them all be just individuals, but I doubt it because that requires a lot of money,” Peterffy said.
Subscribe to CNBC PRO for exclusive information and analysis and live scheduling of weekdays from around the world.