Trading 212 has suspended trading in microcap penny stocks, which attracted the attention of both regulators and amateur investors over the past two months amid social media interest.
The FCA-regulated broker said it temporarily halts purchasing of penny stocks that are highly illiquid and have a market cap in the tens of millions. “If we don’t do so, we risk being suspended by both the relevant exchanges and market makers,” Trading 212 said in statements published on its website.
These tiny-cap stocks, commonly referred to as penny stocks, have for decades been a tool for fraudulent schemes, including the pump-and-dump where manipulators hype a stock before exiting positions.
Volatile trading in so-called “meme stocks” has been drawing scrutiny from policymakers in the US and elsewhere, which promoted many brokers to stick to the safe side and halt related products.
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The soaring retail investor interest driven by conversation on Reddit and Twitter was most notably seen in a surge and subsequent plunge in share prices of GameStop, AMC Entertainment, Blackberry, among others.
Trading 212 Stops Accepting New Clients
“The huge inflow of new retail investors is an unprecedented phenomenon for the financial markets. Brokers, market makers, regulators, and even exchanges are still trying to navigate this new environment. We will continue pushing forward to provide as much trading freedom as is possible within the regulatory framework. A notice indicating that the purchasing is suspended will be placed on each of the affected stocks,” Trading 212 further explains.
The UK broker was among trading platforms that took matters into their own hands recently amid unprecedented volatility in certain stocks. The company was getting tougher to restrict the trading of several highly shorted stocks following a trading frenzy led by small investors. This was extended to reduce the leverage ratio available to silver traders as the grey metal became the latest flashpoint in the Reddit mania.
Trading 212 also halted new account creation and said onboarding more clients would be enabled only after processing the existing applications currently in line. The London-based fintech was one of several platforms, including Robinhood and IG Group, that experienced outages as the number of retail trades soared in many wild days for the markets.