On April 29, the DTCC released B16845-22 under the ‘settlement’ category.
The subject reads: changes to DTC collateral haircuts.
The notice is directed to all market participants and I’m going to touch topic on what this means down below.
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DTCC B16845-22 margin calls
DTCC B16845-22 says that affected participants may be margin called if they have reduced their collateral.
The reason being is that equities with reduced collateral value may significantly drop in price.
Stock prices over $10 will see an increase in margin requirements by 25%.
For prices between $7.50-$9.99 per share, margin requirements will increase by 30%.
There will be a 50% margin increase on stock prices between $5.00-$7.49, and a 100% increase on stocks with prices below $5 per share.
So, will DTCC B16845-22 affect AMC stock or GME stock?
Yes, since AMC is trading around $15 per share and GameStop is trading above $114.
Both these stocks will raise margin requirements by 25%, making it less accessible for short sellers to short the stocks.
However, as long as short sellers are able to meet margin demands, the heavy shorting will continue.
Why was this rule implemented?
The stock market has been facing massive selloffs as well as heavy short selling.
It’s possible DTCC B16845-22 was implemented as a way to cool off short selling, allowing the markets to catch a breather.
Some of the top CEOs in America have stated that they don’t expect this bear market to last long.
I don’t think anyone wants to see the U.S. go into another recession very soon.
While short sellers might have been able to profit from this market’s downside, I think we’re going to see more upside very soon.
What do you think?
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