The strange saga of GameStop took a new twist, as brokerage Robinhood put restrictions on trading in the company’s shares, a move that drew the ire of the app’s merry band of stock-swapping Redditors.
The trading app Robinhood has exploded in popularity this year by offering free trading, fuelling a boom in retail investor activity.
That boom is itself being driven by online stock message boards, including an influential one on Reddit, that has pushed the price of GameStop shares up exponentially in recent weeks, costing Wall Street firms caught on the other side of the trade billions.
But Robinhood pumped the brakes on the frenzy on Thursday, telling its users it would be “restricting trading” in shares in a number of companies that have seen feverish gains, including GameStop, BlackBerry, Bed Bath & Beyond, Nokia and others.
Frenzy of retail investors
Shares in all of those firms have more than quadrupled this year, driven by a frenzy of retail investors.
Robinhood said trading in the affected shares will be limited to traders looking to close out their positions in them. That means holders of the shares can sell them, and shorts can buy them to cover their positions, but any other type of trading will be restricted.
“We also raised margin requirements for certain securities,” Robinhood said. This means traders will see new limits on how much money they are allowed to borrow to buy certain shares. That will also have the effect of making the shares harder to buy.
GameStop shares seesawed wildly on the news, at one point plunging from a high of $469 to $126, before rallying again back up to almost $500. The stock closed at $193.50, down by almost half from the previous day’s level.
At the start of 2021, the company was worth barely $20 a share, but that was before a history-making short squeeze.
TD Bank also limits trading
Another brokerage, Interactive Brokers, also moved to limit trading in that handful of stocks.
“We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into
liquidation only,” the company said.
And TD Bank confirmed to CBC News that it, too, had moved to limit trading in certain securities.
A spokesperson said the bank has “put into place precautionary measures to restrict short selling and options trading for some securities like several brokerages and trading platforms across North America have done.”
A group of GameStop shareholders have already launched a class action suit against Robinhood for trying to restrict trading.
Prominent retail investor Dave Portnoy, who made his fortune as the founder of sports media startup Barstool, has parlayed that wealth into even more via a series of high profile stock market bets.
He vowed to wage war with Robinhood for the crackdown on Thursday.
I own <a href=”https://twitter.com/search?q=%24amc&src=ctag&ref_src=twsrc%5Etfw”>$amc</a> <a href=”https://twitter.com/search?q=%24nok&src=ctag&ref_src=twsrc%5Etfw”>$nok</a> <a href=”https://twitter.com/search?q=%24nakd&src=ctag&ref_src=twsrc%5Etfw”>$nakd</a>. I bought them with the understanding we live in a free market where people can buy and sell stocks fair and square and at their own risk. I will hold them till the death as a reminder that <a href=”https://twitter.com/RobinhoodApp?ref_src=twsrc%5Etfw”>@RobinhoodApp</a> founders must go to prison
GameStop shares were trying to muster some sort of recovery, but the other names targeted by the brokerages fared worse. AMC lost half its value, BlackBerry lost 40 per cent, and Bed Bath & Beyond also plunged.
“The Robinhood ban on those stocks have put a pretty good end to (the rally),” said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas. “Everybody’s trying to hit the exit button at the same time.”