Temporary BUY Restrictions on Illiquid OTC Penny Stocks

šŸ“Š Investing
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During the recent months, there has been unprecedented market activity and volatility worldwide, including in U.S. microcap penny stocks. These stocks are especially risky due to the lack of liquidity, public information, and extreme volatility. Many microcap companies are new and donā€™t have any proven track record. That said, the recent trading frenzy has triggered concerns and investigations from regulators, and liquidity providers.

When thereā€™s a sudden influx of orders for a certain microcap security, it triggers an investigation for market manipulation and could lead to a potential suspension of the stock. Even when thereā€™s no evidence for misconduct, brokers have to take care that the traded volumes are not disproportionate to the normal activity.

Based on the above, we are required to temporarily suspend the purchasing of penny stocks that are highly illiquid and have a market cap in the tens of millions. If we donā€™t do so, we risk being suspended by both the relevant exchanges and market makers.

The above is beyond our control and we have to comply with the regulations.

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.

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Itā€™s a shame to hear the situation has gotten so bad.

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I think Discord Groups and WallStreetBets see better opportunities in Micro caps hence the large market purchases of these Stocks.

I donā€™t blame T212 for suspending them but I honestly feel the Free Market is becoming more restrictive as it is denying Investors to pick and choose stocks (even those with high risk).

Iā€™d say to these larger Brokers to let these people buy the stocks and lose money if they didnā€™t do their own research.

They are in for a huge fall regardless following each other if the Companies are not great. If they are hidden Gems then that is great and the Brokers make money in the process.

I hope this applies to Institutional and Hedge Fund Investors too then and not just because the Retail Investors are getting in on Micro Caps.

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I think the problem is that the opportunity is there in ultra-small cap as they donā€™t need that much capital to make a significant move on the stock price. Institutions have done the same tactic forever, and itā€™s not fair. The difficultly is trying to regulate this, and they just never really done anything against the institutions.

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Good explanation, but disappointed with overall decision.

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This was announced by IG earlier. Events of recent weeks have impacted nearly all brokers one way or another.

ā€œIG Announces 100% Margin Requirements on 1,000+ Stocks - Shifting Sharesā€ IG Announces 100% Margin Requirements on 1,000+ Stocks - Shifting Shares

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This sucks but thank you very much for the detailed and thorough explanation. Hopefully people take the time to read it and understand it before smashing their keyboards with rage.

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@kingola2nd @ryan9921 Thanks for the understanding. Weā€™re not happy with whatā€™s about to happen but as I said, itā€™s out of our controlā€¦

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Hello. I can see why it would seem like suspicious behaviour if for no apparent reason there is a sudden influx of money into an OTCMKTS stock.

However as an AIM investor, these stocks are notorious for being illiquid and is part and parcel of AIM investing.

Can you confirm that these changes will not effect AIM?

The AIM markets, from the LSE is well regulated and I have my fingers crossed there is not a blanket ban on all small cap stocks on 212.

Thank you

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@bmbm365 Good point - AIM stocks are not affected, Iā€™ll edit the initial message to clarify that.

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Thatā€™s good to hear

Everyone can pile into KEFI at 2p now, Iā€™d like that at 20p now

:sweat_smile:

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Are all of those restrictions in place? How we can recognize that our stocks are illiquid? Do you have certain criteria such as daily traded volume?

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@Thomas, this might answer your question.

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Tickers of small companies are not allowed on WSB and many other subreddits.
Those tickers are deleted by the special bots that check market caps.

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Ah Interesting to know. Assumed they would target them.

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I appreciate your honesty this time round, much better than how you handled gamestop.

I donā€™t see how they are going to find a solution to this new environment though, with social media and commission free trading how will they ever know market manipulation from say a popular youtuber with a large following recommending a stock?

All they are doing is hastening the rise of a decentralized block chain market that they will have no control over.

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So how are traders meant to legitimately buy these stocks. If my company was on PINK sheets and I was told nobody could buy the shares only sell because they may be pumped then Iā€™d be pretty miffed.

Donā€™t these actions kind of destroy liquidity completely in trying to pre-empt possible pump and dumps? Taking them from just very very low liquidity to zero, completely illiquid no buyers.

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However you want to word it itā€™s manipulation against the little guy because they/weā€™re earning money. I found HCMC through research and DD but got buying restrictions temporarily not long after. Itā€™s not manipulation itā€™s me doing research but Iā€™m stopped from trading my own money. Happy to keep that sell option there though??

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Youā€™d prefer to be unable to sell something you own? Youā€™d prefer to have your own money locked up in an asset that you are not allowed to sell? I see this kind of complaint a lot and it baffles me - why on earth would you complain about NOT being prevented selling something that belongs to you??

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