Charles Schwab (SCHW) Issues Statement About Recent Trading Activity

January 29, 2021 10:32 AM EST

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The Charles Schwab Corporation announced today it has issued a statement regarding recent trading activity:

In recent days, much attention has been paid to trading in a group of securities that include GME, AMC, EXPR and others, that are part of what is being called a “short-squeeze.” As part of the increased media attention around this activity, there has been some confusion about what Charles Schwab & Co. and TD Ameritrade have each done in response to the situation. To clarify:

Neither Charles Schwab & Co. nor TD Ameritrade halted buying or selling ANY stocks this week. Neither firm restricted buying or selling basic options. Both firms did adjust margin requirements on select stocks to ensure clients had sufficient assets to pay for stock purchases. Both firms also restricted certain advanced options strategies.

More specifically, the actions taken include:

  1. Both firms put in place some restrictions on certain types of options transactions to help mitigate risk. For example, we are not allowing clients to sell naked call options in order to mitigate an unlimited risk situation. These decisions are based on risk and volatility and are made on an individual security basis.
  2. Both firms, as normal course of business, review and alter margin requirements in highly volatile securities. As margin requirements increase, clients are required to hold more equity in their accounts to make trades in these securities.
  3. As an example, for the GME security, both firms changed the requirement to 100%, thereby removing margin from the security. This process began on Jan 13th, 2021. Since that time, clients have been restricted from using GME as collateral for a margin loan; before Jan 13th clients could do so in a limited way. The example below illustrates what this means:
    1. Client owns $100,000 of a marginable stock (i.e., XYZ). They can take out a margin loan against XYZ to buy non-marginable securities, like GME.
    2. Client owns $100,000 of a non-marginable stock, like GME. They cannot take out a margin loan against GME to buy XYZ.

We believe these steps appropriately balance investors’ ability to trade these securities with the firm’s duty to protect itself from potentially absorbing losses incurred by an individual’s trading or investing strategies. They are consistent with our long-standing risk management practices and similar to steps we have taken with other high-risk or highly volatile securities in the past.

The Schwab Center for Financial research has published commentary for investors seeking additional perspective.

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