Square’s Cash App Faults Clearing Broker For Suspending AMC, Nokia Trading

Trading of AMC and Nokia on Square’s Cash App has resumed after being temporarily suspended by its U.S. clearing broker, according to a Cash App blog post on Tuesday (Feb. 2). 

“Cash App currently works with a carrying broker-dealer, DriveWealth, and a clearing broker-dealer, Axos, to process trades on our customers’ behalf, and we are entirely subject to our brokers’ ability to support our trades,” noted the blog post.

Clearing brokers provide the funds to support trading. The central clearinghouse (DTC) raised the capital requirements on Axos by more than 250 percent.

Trading has now resumed for AMC and Nokia buys through Cash App for the rest of the trading day on Tuesday (Feb. 2), the post indicated in an update posted about 2:30 p.m. EST. 

“At this time, we don’t have information as to the reasons for Axos’ decision or whether they met the increased deposit requirements. We will provide an update if the situation changes,” the post added.

The development follows the recent trading frenzy of heavily shorted shares on Robinhood, which cost the Silicon Valley FinTech startup nearly $3.4 billion in emergency investor funding. The accelerated trading volumes raised deposit limits at Robinhood’s clearinghouse, forcing it to limit some transactions.

Wall Street is having another week of market chaos involving the inflation of stocks like GameStop and AMC, which caused major upsets at some of the larger hedge funds. Melvin Capital took a 53 percent hit after stock prices escalated on stocks it had bet against. Melvin ended January with over $8 billion in assets, despite starting the year with around $12.5 billion.

Robinhood said it had no choice but to stop trading on certain securities like GameStop because of clearinghouse requirements. The digital trading startup has to meet those requirements by 10 a.m. every trading day. Clearinghouses can require extra deposits if some thresholds are met. During the GameStop trading frenzy, Robinhood said the clearinghouse upped the requirement tenfold.