Schwab Issues Statement About Recent Trading Activity
January 29 2021 - 10:32AM
Business Wire
Neither
Charles Schwab & Co. nor TD Ameritrade have halted buying or
selling in any stocks
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:
- 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.
- 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.
- 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:
- 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.
- 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.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help
individuals create a better tomorrow. We have a history of
challenging the status quo in our industry, innovating in ways that
benefit investors and the advisors and employers who serve them,
and championing our clients’ goals with passion and integrity.
More information is available at www.aboutschwab.com. Follow us
on Twitter, Facebook, YouTube and LinkedIn.
* The performance characteristics of selling a naked call are
unlimited risk and limited potential.
Borrowing on margin may not be appropriate for every investor
and it is important to determine how it fits into your investment
strategy. Margin has additional risk associated with market
volatility, and it is possible to lose more funds than you deposit
into your account. Margin accounts also require a higher level of
attention, including potentially monitoring stock prices on a daily
basis. Schwab generally recommends margin be used by clients with
more than five years of investing experience. Please review Margin
Borrowing at Schwab: Overview and Disclosure Statement for
additional information.
Options carry a high level of risk and are not suitable for all
investors. Certain requirements must be met to trade options
through Schwab. Investing involves risks, including loss of
principal. Hedging and protective strategies generally involve
additional costs and do not assure a profit or guarantee against
loss. With long options, investors may lose 100% of funds invested.
Covered calls provide income, downside protection only to the
extent of the premium received, and limit upside potential to the
strike price plus premium received. Spread trading must be done in
a margin account. Please read the Options Disclosure Document
titled "Characteristics and Risks of Standardized Options" before
considering any options transaction. Supporting documentation for
any claims or statistical information is available upon
request.
(0121-1C3C)
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Erin Montgomery Charles Schwab (212) 403-9271
Erin.Montgomery@schwab.com
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