These penny stocks have been a tool for fraudulent schemes, including the pump-and-dump where manipulators hype a stock before exiting positions
Trading 212 has suspended trading in microcap penny stocks, which attracted the attention of regulators as well as 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 been a tool for fraudulent schemes for decades, 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 stay on the safe side and halt related products.
The surging 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.
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 company got 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 adding more clients would be enabled only after processing the applications currently in line. The fintech was one of several platforms that experienced outages as the number of retail trades soared during unprecedented volatility in certain stocks.