Because the clearing firm says so. But mainly because there’s a chance the shares aren’t real or something and they need some extra capital until the shares settle two days later.
Yep, you are right. . . Honestly as a DIY guy, i would say focus on the Full-Service Brokerages for things like Cert deposit and high volume trading. You will get greater flexibility. 1. Volatility Component: NSCC calculates and imposes a "volatility" charge purportedly "designed to measure market price volatility" and to "capture market price risk associated with each Member's portfolio at a 99th percentile level of confidence."33 The standard volatility formula is complex, to say the least, but essentially imposes a "Value at Risk" charge that is based on the highest of a "core parametric estimation," a "gap risk measure," and "the portfolio margin floor." 34 NSCC has discretion to impose a different volatility charge for microcap stocks (below $5/share) or OTC or pink sheet issues ("OTC Volatility Charge") consisting of a multiple of "the absolute value of such positions [and] a percentage designated by [NSCC], which percentage shall not be less than 10% .... "35 -plus 2. Mark-To-Market Component: NSCC calculates and imposes a mark-to-market charge generally based on the net of each day's difference between the contract price of the net positions and the current market price for such positions. 36 Thus, this component could result in either a debit or a credit, if applied as written, based upon the direction in which the current market price fluctuates. 3. Discretionary Volatility Component: NSCC may also impose a "special charge" upon "Members in view of price fluctuations in or volatility or lack of liquidity of any security." No formula is identified for calculating this charge. Rather, NSCC states that it "shall make any such determination based on such factors as the Corporation determines to be appropriate from time to time."37 -plus 4. CNS Fail Position Component: NSCC calculates and imposes a charge for a Member's "aggregate CNS Fails Positions" by multiplying the current market value for such positions by (i) 5% for Members rated 1 through 4 on NSCC's Credit Risk Rating Matrix ("CRRM"); (ii) 10% for Members rated 5 or 6 on the CRRM; or (iii) 20% for Members rated 7 on the CRRM. NSCC has assigned Alpine a CRRM Rating of 7. 38 -plus 5. Margin Requirement Differential Component: NSCC calculates and imposes a "margin requirement differential component charge" by taking the "sum of the exponentially weighted moving average ('EWMA') of the daily positive changes over a 100-day lookback period in the Member's (i) Regular Mark-to-Market component, (ii) ID Net Mark-to-Market component and (iii) volatility components, times a multiplier calibrated based on backtesting results."39 -plus 6. Coverage Component: NSCC calculates and imposes a "coverage component charge" calculated as "the EWMA of the Member's daily backtesting coverage deficiency amount over a 100 day lookback period." The Member's "backtesting deficiency amount" for each day is the "difference between the simulated profit and loss on the Member's portfolio and the sum of the Member's (i) volatility component, (ii) margin requirement differential component and (iii) Illiquid Charge."40 -plus 7. Illiquid Charge Component: NSCC calculates and imposes a charge on "Illiquid Positions." An "Illiquid Position" means "a Net Unsettled Position in an Illiquid Security that exceeds applicable volume thresholds. For net buy positions in an Illiquid Security, the volume thresholds shall be no greater than 100 million shares based on the Member's
This is true is some respects but the capital required to be posted is sooooo excessive that it's killing the micro-cap markets in the US. I'm not really complaining since more listings are going to Canada's CSE & TSXV which benefits my bottom line.
Do you remember when people were getting charged $250 to $1,000 a trade on certain BB or Grays? DTC had to physically make copies creating angry brokerage customers who spent $500 trade plus $300 commission to buy? Was around 2013 maybe.
Is it really necessary? I see hundreds of microcap companies trading hundreds of millions of shares. I don't believe they have billions of dollars in capital reserves
Those Microcaps are just the issuers. That's completely separate. Those tickers likely have good volume and don't have restriction or capital charges. We're talking about the brokerage and the clearing house.
Yep, Still happens sometimes. Sometimes there is a "Chill on Deposits" or a "Chill on Withdrawals". So 1 side of the trade could be an electronic trade in the order book and the other side of the trade needed to be settled physically or both sides physically. What a clusterFuck of a nightmare.