So you are ok with your broker restricting your investment options, because one of hedge funds they sell your order flow to made a bunch of dumb decisions which put the whole market into very fragile position?
There is a fixed amount that is deposited into a varaiety of accounts, let's say the total is T and individual accounts are T_i.
There are also consistent monthly inflows into a variety of T_i's that are dwarfed by T. These mostly go into scheduled investments (ETFs, etc). Call these TM_i.
The majority of T is invested and not traded. The total amount available for short term trades is T_t which is perhaps (in my estimation) 20% of T. That's still a large amount. Howver, this 20% sets the price. Everything happens at the margins.
Trading is the act of taking from one T_i into another T_i. That's it.
That's the job of clearinghouses. Each broker has to settle up at some point but also has to have collateral deposited in order to make sure that they can settle up. This collateral fluctuates depending on volatility.
The worry was that given the obscene run, brokers would not be able to settle up.
IBKR did the right thing to keep a catastrophic problem from developing.
Of course, shorting 130% of a stocks float is a problem that needs to be resolved as well as this is the root cause. If it were just 20-30% then this would never have happened.
So where was IBKR when people were shorting 130% of stocks?
Your guess is as good as mine but my guess is that _their_ risk management, which is very good, handled this reasonably well in their little bubble and they could have potentially been punished by the actions of other people and decided that this was not a risk they were willing to take.
Tough thing to resolve but by talking about it, I think it can be resolved well.
Root cause: somehow, you can short more than the float.
