Trading 212, a UK-based brokerage, has selflessly opted to suspend the trading of microcap penny stocks. These stocks had attracted both amateur investors and the UK regulators to Trading 212’s doorstep, and it seemed that the experience had made the firm cease penny stock trading completely amid this time of social and economic unrest.
Opting Out Of “Meme Stock” Trading
Trading 212 stands as a fully-regulated broker under the watchful eye of the Financial Conduct Authority, or FCA. The broker stated that this suspension pertains to penny stocks that boast market caps of just tens of millions and are considered illiquid. Trading 212 pulled no punches, justifying this move because of fear of being suspended by the relevant market makers and exchanges.
Penny stocks, as they’re commonly called, boast many features that very few people can speak about positively. These features include being commonly subject to various fraud schemes by criminal actors, with the most common and infamous being pump and dump actions. Malicious actors artificially hype up the stock price of these penny stocks, then selling their own holdings the moment the price action favors them. As one would imagine, this sort of behavior isn’t really helping the image of penny stocks.
Allowed For Me, But Not For Thee
Now, however, after the great “Gamestonks” fiasco, these penny stocks hold a new nickname, Memestocks. These sorts of stocks have been subject to extensive scrutiny from the world’s policymakers, the US being the most prominent. These regulators actively encouraged them to stop listing penny stocks for fear of market manipulation by retail traders, which is apparently much worse than institutional manipulation.
The issue (for institutions) is that mainstream media outlet users realized they have the ability, in large numbers, to artificially pump and dump various small-time stocks. At first, it was Gamestop, but it quickly moved to various other stocks, such as Blackberry, AMC entertainment, and more. Hedge funds have lost billions in the process, and everyone’s mad at the retail investor for doing what institutional players do regularly.
Trading 212 explained that this massive inflow of retail traders had caught the institutional players completely off guard. Every facet of the space, be it market maker, broker, or the exchanges themselves, don’t rightly know how to navigate and profit from these new actions quite yet. Trading 212, apparently opting out of the entire fiasco altogether, has suspended penny stocks while also promising as much financial freedom as possible within it.
Trade 212 Protecting Vulnerable Institutions
Trading 212 was one of the many exchanges that opted to protect the vulnerable institutions from the various undoubtedly deadly legions of retail traders. They did this by placing severe restrictions against various extremely shorted stocks after the retail traders bought up various shares of small-scale entities to enact short squeezes against institutional buyers. Undoubtedly, the various institutions, worth millions or billions of USD, are very grateful that exchanges like Trade 212 protected them from the horrid retail trader weaponizing the same tactics they use, but in a way that institutions are unable to profit from.