Trading 212 has halted offering microchip penny stocks which attracted both regulators and amateur investors in the last two months following social media interest.
The broker said it temporarily halted purchasing penny stocks that were highly illiquid and had a market cap in the tens of millions. The broker is FCA-regulated.
The broker said this suspended trading in penny stocks because they also risked suspension from the relevant exchanges and market makers.
Penny stocks which are tiny-cap stocks, have for a decade been a tool for fraudulent schemes. Such schemes include pump-and-pump, where manipulators hype a stock before exiting positions.
Volatile trading in “meme stocks” has drawn scrutiny from policymakers in the US and other places. The scrutiny has made many brokers stick to the safe side and suspended related products.
Conversations on Twitter and Reddit have driven high retail investor interest. Most notably, the interest is seen in the surge and subsequent plunge in share prices of GameStop, Blackberry, AMC Entertainment, and others.
Trading 212 stops accepting new retail clients.
The massive inflow of new retail investors is an unheard-of phenomenon for the financial markets. Market makers, brokers, regulators, and exchanges are still trying to navigate the new environment.
The broker said they would continue pushing forward as much as trading freedom as possible within the regulatory framework.
Trading 212 further explains that it will place a notice that purchasing is suspended on each affected stock.
Recently, Trading 212 was among trading platforms that took matters head-on amid volatility in certain stocks.
The broker was getting tougher to restrict trading several highly shorted stocks following a trading frenzy the small investors led.
It was extended to reduce the leverage ratio available to silver traders as the grey metal became Reddit mania’s latest flashpoint.
Furthermore, the broker halted new account creation and said they would enable onboarding more clients after processing the existing applications currently in line.
The London-based fintech was one of the brokers, including IG Group and Robinhood, that experienced outages as the number of retail trades spared in many stormy days for the markets.