Clearing and settlement involve counterparty risk - if a brokerage can't hand over the money come settlement, the settlement firm may be on the hook. The risk of this is proportional to volatility. Due to high volatility, DTC increased its settlement costs. This isn't usually a big deal to a clearing firm or a brokerage because retail brokers don't usually have huge exposure to a single equity.
My bet is with the entire world suddenly memed into buying GME, settlement for retail brokers suddenly became very expensive and there wasn't an existing mechanism to pass on this cost down the chain, so halting orders was the only option on short notice.
Also, I don't think any of these people crying foul consider that those who short stocks do so at constant peril of forced close outs because shares are no longer available to be borrowed. The notice involved can be minutes to hours.
This is what I couldn't understand about what the endgame of this would have to be. Because you can't really have a situation where all the shares are bought up sending the shares to infinity. At some point something breaks. Someone has to pay money for those shares.
That could be that retail investors bolt for the door just like a bubble popping and because its difficult to maintain steadiness when you're looking at huge gains that aren't realized. And that is what they thought would happen.
What would be more reasonable would be to liquidate Melvin Capital and anyone stupid enough to invest in them and the holders of GME shares would become creditors against that bankruptcy proceeding somehow. SEC would have to manage that unwinding somehow.
But the problem is that the clearinghouses like Citadel are counterparties to Melvin Capital and they've privately bailed them out, taken over their shorts and will now hugely profit by suspending trading and riding those short positions down. This now entirely makes sense to me as what was inevitable, because while WSB was trying to destroy Melvin Capital they didn't understand that the implications of that were going to be destroying the clearinghouses through counterparty risk. And they were never going to let that happen, so they shut it all down and will eat the SEC investigation.
This is a very interesting outcome just due to the moral hazard it creates with shorting.
It is also a very interesting outcome because a lot of "little guys" just learned an object lesson in what happens when it looks like you are beating the "big guys". They won't let that happen. There's going to be a lot of political rage as a result of this. We're going to have to make a decision in the next 10 years or so if we'd like to funnel that rage towards socialism or fascism, the status quo is going to continue to enrage people.
We'll see how it worked in the coming weeks.
My guess is that market makers that these brokers sell orders to said no. Brokers make a lot of money selling retail orders to someone else.
Why did they all come to the same conclusion at the same time?
It's blatant protection for short positions. These brokers are hamming up the "we need to protect retail from volatility" narrative when they're clearly trying their best to stop their business partners from going bust.
It's sickening.
Let's be clear about a few things. Brokerages do not care about protecting retail investors, they only protect their customers when forced to do so by regulators. What brokerages do is protect themselves from liability, financial losses, and scrutiny. They have no problem screwing over their customers when it suits them. They will raise margin requirements and force customers to take a loss as soon as their risk models say that they should do so. They will restrict trading whenever it looks like there is a scam, simply because it wards off possible investigations into their business.
What they can get in trouble for, and RH did get a slap on the wrists for already, is working against their customers' interests for the benefit of their business partners. One brokerage I could believe, but I doubt that half a dozen would all do it at the same time and with the same securities.
I can see the nice narrative of allowing retailers to sell ("capture gains"), but it's indefensible to only allow selling.
That's _blatant_ market manipulation.
I'm not talking about edge cases with margin calls.
I want other examples where it's appropriate for some brokers to restrict _buying_ but not selling, especially in the context of a short squeeze, with potential conflicts of interest.
I understand that brokers can restrict trade on risky items as yes, it impacts their risk model. I'm failing to find justification for RH and others to restrict buying but not selling of GME.
Your first link is for penny stocks, and the restrictions revolve around the usual pump-and-dump. You're allowed to go long, and can trade between days.
Your second link is for OTC, and I fail to see how this is relevant to GME. GME is traded on formal exchanges, and brokers that haven't arbitrarily restricted buying aren't having any liquidity issues.