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Why is there a buy restriction on a specific share?

From time to time you may find that you would like to buy a specific share but are unable to do so on the EasyEquities platform. 

There are several different reasons why this can occur with varied causes and implications. General activity restriction during open trading hours is most likely because a share is in a volatility auction due to unusual price variations. These are usually short-term and temporary in duration. 

On other occasions shares may be restricted through suspension for a longer duration. This can be directed by the regulator due to compliance issues such as not timeously submitting financial reports (2020- Choppies), or requested by the share company such as suspension in proceedings of business rescue (202- Comair). Such restrictions can be for hours or even permanent.

One particular scenario which may impact your ability to invest in a particular share occurs when a share is experiencing an extreme amount of unexpected volatility due to unusual conditions. 

Here’s an example in the US markets:

EasyEquities has the ability to offer US shares on its platform by means of a relationship we have with a broker dealer. The broker dealer is the link to the US market which we make available to our community to invest in. 

The broker dealer also has a relationship with a clearing house. This entity serves as the central depository for all shares traded. 

In order for the broker dealer to make the shares it has available it needs to maintain deposits with clearing houses. Clearing houses are entities that enable the market trading settlement process between all financial institutions. A value is reserved to allow a transaction to take place. It’s a way in which the broker dealer can show the clearing house that they are always good for client trades. The values reserved are based on mathematical models that consider how much volume is traded and more general trading characteristics. 

However…

If a share is experiencing a lot of unexpected and exceptional volatility, the amount paid over by the broker dealer to the clearing house will increase with the new demand and volume. If this shoots up really quickly, as is the case with Nokia and some other US shares in early 2021, the broker dealer has to make a call as to whether they are prepared to undertake the risk of this increased deposit amount required from them to maintain a market. If not (and in extreme market conditions), which was the decision taken by our broker dealer on the Nokia share, then buying of the share becomes restricted. 

Selling of the share is still allowed. This will actually lower the risk for the broker dealer. But buying of the share will stop until such a time that the broker dealer is comfortable with the deposit amount required to secure normal buying and selling.

 


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