There's a movement underway in the US share markets. Some investors are trying to outsmart institutional investors in what some are calling a David vs Goliath battle.

During market hours, there may be times you'll be unable to buy shares in AMC Entertainment Holdings Inc (AMC), GameStop Corp (GME) and Nokia Corporation (NOK) due to clearing firm trading halts or NYSE trading halts.

We want to be clear, the decisions to halt trading on companies are not made by Hatch.

When you buy and sell shares, the transaction looks instantaneous. However, the reality is more complicated. It takes two days for the money and shares to change hands. Clearing firms are an invisible but vital part of every transaction. Their job is to make sure the trades are completed, even if one side defaults (e.g. the buyer doesn’t have the money to pay for the shares). To limit risk, they require brokers to pay into a ‘default’ fund.

When the price of shares in a company becomes particularly volatile (and is widely known to be overvalued), and the number of orders spike, so does the risk of default. Especially when investors buy shares ‘on margin’ (i.e. using money they borrow from a broker). In this scenario, clearing firms require brokers to add more money to the default fund to reflect the increased risk. If a clearing firm determines that share price volatility, the number of orders and an imbalance between buys and sell orders is unacceptably high, they can tell a broker to halt trading until risk levels are more acceptable.

The Depository Trust Company (DTC) requires clearing firms and brokers to have money on hand to deal with the substantial increase in risk of defaults. DriveWealth and Axos, DriveWealth’s clearing firm, are working closely to comply with legally required deposit requirements to avoid trading interruptions.

You can read more about the role of clearing firms here.

Because of the extraordinary number of orders and rapid share price changes, the NYSE has been putting in place ‘trading halts’ - temporarily stopping investors from being able to buy and sell shares in the affected companies (particularly GameStop and AMC). While these halts are in place, all orders will be automatically rejected. We don’t know if the halts will be extended and for how long, but you can track them here.

You may have read some comments online about Wall Street conspiracies to shut down everyday investors through limiting the ability to order. We’ve been in regular contact with our broker DriveWealth and expect that any halts to orders on Hatch will stem from the markets or clearing firms.

This massive increase in worldwide share market activity has resulted in widespread outages and delays for most investing platforms, including Hatch. You may experience:

We designed Hatch to take investing tools and opportunities that were previously reserved for the elite, and place them in everyday Kiwis' hands. We believe in giving you the ability to make your own investment decisions and that our job is to provide access and information. This movement may wind up forcing long-overdue reviews into investing infrastructure and regulation, and we’d love to see an industry that’s fit for purpose for a new generation of empowered everyday investors. But those changes haven’t come yet. If you choose to participate in this movement financially, you must understand and accept the risks - including trading halts that may stop you being able to buy or sell shares when you want to

Analysts agree we’re now a long way past this being about a positive change in the prospects for the future of the companies caught up in the movement.

Investments now seems to be driven by one of two things;

With Hatch, it’s up to you to do your research and make informed investments. If you choose to make speculative or “protest” investments (or any investment), YOU are responsible for any consequences of that choice. Not us. Not even if you can’t place an order when you want to. Not even if someone else made lots of money (or said they did).

It’s also your responsibility to understand the types of orders you’re placing. For example, stop-loss orders become market orders when the price you set is reached. You’re not guaranteed to get the price you want, and when the price of shares changes in a hurry there can be a big difference!

We also know that if you’re trying to build wealth, day trading is always a bad idea because it’s based on being able to ‘time the market’. With the intermittent trading halts over the last few days (and who knows for how long), it’s an even worse one.

Investing out of FOMO is one of the 5 biggest mistakes investors make. We know that with all the news and Hatch investor club chat, it’s easy to be tempted to jump on the hype train.

Fewer than 3% of Hatchlings currently own shares in GameStop. That’s quite a difference from the 56% reported by Robinhood. Hatch investors are by-and-large watching from the sidelines, and sticking with their investing plans.

Institutional investors have placed bets against several companies they expect to fail or drop in value (a practice called 'shorting'). A group of retail investors are buying up shares in these companies to increase the share price and harm institutional investors' strategy of profiting off the falling share price.

As the story went viral, many, many other investors got involved and now the NYSE and regulators are discussing how to manage the situation - things are changing quickly. Google is a great way to stay up to date with fast-changing updates and we think this article and this article provide a reasonably good summary of why it's all come about.

As always, we’re happy to answer any more questions you have! Email us anytime at hello@hatchinvest.nz.