What is going on with Wall Street? Robinhood restricts GameStop trading

Business

The Robinhood vestment app is see on a smartphone in this photo illustration on June 24, 2020 in Washington,DC. – After the suicide of one of his clients, convinced that he had lost hundreds of thousands of dollars, the online broker Robinhood came under heavy criticism. Popular with millennials, the platform is accused by its detractors of trivializing stock market transactions. (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)

NEW YORK (NewsNation Now) — Online trading platforms Robinhood and Interactive Brokers said Thursday they had restricted trading in shares of GameStop, BlackBerry and other companies that have seen hefty gains this week due to a social media-driven trading frenzy. 

GameStop stock rocketed from below $20 earlier this month to more than $350 Wednesday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.

The action was even wilder Thursday: The stock swung between $112 and $483. At midday, it was down 27% at $255. By 5:15 p.m. EST, it was down 44% to $153.

Among the restrictions announced by Robinhood on Thursday, investors would only be able to sell their positions and not open new ones in some cases, and Robinhood will try to slow the amount of trading using borrowed money.

Besides GameStop, Robinhood said trading in stocks such as AMC Entertainment, Bed Bath & Beyond, Blackberry, Nokia, Express Inc., Koss Corp., American Airlines, Tootsie Roll, Trivago and Naked Brand Group would be affected by the new restrictions.

“Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed,” Robinhood said in a statement on Thursday.

Interactive Brokers, another online trading platform, also said it was restricting trading in those stocks.

“We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only,” Interactive Brokers said.

The war began last week when famed hedge fund short seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way. He said on Wednesday he had abandoned the bet.

Other big institution like Melvin Capital had also placed bets that GameStop shares would fall as the company tries to transform itself from a bricks and mortar retailer to a seller of online video games.

By smaller investors sending the stock soaring higher, they forced the big players to cover their bets by buying the stock, increasing the stock even further.

Robinhood’s stated goal is to “democratize” investing and to bring more regular people into investing. But the company has run afoul of regulators who say the company downplays the risks of trading. Robinhood said it is making moves to better educate users of its platform about those risks.

Investors are now sitting on estimated year-to-date losses of $70.87 billion on their bets against companies following massive rise in some of the heavily shorted shares, data from analytics firm Ortex showed Thursday.

This week’s turmoil caught the attention of the White House, with President Joe Biden’s economic team – including Treasury Secretary Janet Yellen on her first full day on the job on Wednesday – “monitoring the situation.”

Massachusetts state regulator William Galvin called on NYSE to suspend trading in GameStop for 30 days to allow a cooling-off period.

Democratic Representative Alexandria Ocasio-Cortez called for an investigation into Robinhood’s decision to block Gamestop trading.

“This is unacceptable,” Ocasio-Cortez said in a tweet Thursday. “We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.”

Senator Ted Cruz, a Republican, took to Twitter retweeting Ocasio-Cortez with rare words of agreement, writing “Fully agree.”

Cruz told reporters that lawmakers needed answers “to why they halted the trading. … it seems to favor a handful of rich influential players at the expense of ordinary citizens and ordinary traders.”

The U.S. House Financial Services and Senate Banking committees said on Thursday they will hold hearings on the stock market after Robinhood’s decision.

“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price,” said Representative Maxine Waters, a Democrat who heads the House panel.

Waters added the hearing will focus on “short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors.”

Republican Senators Mike Lee and Patrick Toomey also joined the critics of Robinhood.

A Robinhood spokeswoman declined to comment on the lawmakers’ criticism.

At least one lawsuit was filed Thursday in U.S. District Court in New York claiming Robinhood manipulated the market by restricting investors’ access to trading GameStop.

Full Robinhood Statement

This past year, we’ve seen the financial markets become a voice for the voiceless. We’ve seen a new generation of people come into the markets, sparking conversations about what it means to be an investor. Our customers have shown the world that investing is for everyone—not just institutional investors and hedge funds.

Amid this week’s extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.

Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed. 

To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We’re beginning to open up trading for some of these securities in a responsible manner.

We stand in support of our customers and the freedom of retail investors to shape their own financial future. Democratizing finance has been our guiding star since our earliest days. We will continue to build products that give more people—not fewer—access to our financial system. We’ll keep monitoring market conditions as we look to restore full trading for these securities. We will update this Help Center article with the latest changes. 

We are deeply grateful to our customers.

Robinhood Statement

The Associated Press and Reuters contributed to this report.

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