Stock Exchange

Robinhood to allow trades of GameStop and other volatile companies

After an outcry, Robinhood says it will allow users to trade GameStop again on Friday.

Several retail stockbrokers, including Robinhood, said they would allow trades of GameStop and other volatile companies after restricting customers’ ability to purchase securities earlier in the day.

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

Robinhood, which has attracted millions of millennials to trade on its platform by eliminating trading fees and making stock trading easy, had said Thursday morning that it would limit buying of the kinds of securities that have sparked an enormous rally in shares of GameStop, the video game retailer at the heart of the frenzy, and AMC Entertainment Holdings, the movie theater chain, and a number of other companies. The decision quickly drew fire.

Customers flooded Google’s Play Store with angry, one-star reviews about the restrictions, tanking its average rating to 1 star out of 5.

“Manipulating the market in favour of Wall St. Completely undemocratic, the exact opposite of their motto,” wrote one reviewer.

“Well, steal from the rich and give to the poor, unless you try to take from the rich directly, in which case the app won’t work anymore. Enjoy your hypocrisy,” wrote another user.

In its update on Thursday afternoon, Robinhood defended itself against accusations of favoring big traders, saying it had made the decision to limit trades because of “financial requirements, including SEC net capital obligations and clearinghouse deposits.”

“To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” the company said.

The past few days have turned Wall Street on its head as Reddit users colluded to buy massive amounts of GameStop stock, with the explicit aim of hurting hedge funds that profit off shorting the typically falling stock. A lot of that GameStop trading happened on Robinhood.

Gamestop stocks have become the talk of the town post its price surge yesterday over $300 which was largely pushed by a Reddit group wallstreetbets in what eventually turned into retail vs banker trade battle.

Nasdaq came to many short buyers’ rescue when it halted the trade of GME tokens calling it a manipulation owing to its social media hype. Robinhood followed the suite and halted all buy trades for spot and options.

In a short statement, the company said:

We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG.

We also raised margin requirements for certain securities.

BlackBerry has already stated they see no reason for the surge in their shares and Nokia has now followed suit with a Nokia spokesperson stating:

Nokia is not aware of any material, undisclosed corporate developments or material change in its business or affairs that has not been publicly disclosed that would account for the recent increase in the market price or trading volume of its shares.

Robinhood’s action might lead up to its closure as the demands for criminal action lawsuit against the trading app has caught the attention of US Congresswoman Alexandria Ocasio-Cortez who called for an investigation into the trading app for blocking GME stocks trade at the peak of its price for retail investors while hedge funds can still trade it freely without any restrictions.

The Congresswoman went onto the point that the investigation won’t be limited to Robinhood and would include other exchanges following a similar practice.

Hardly anyone believes that GameStop, BlackBerry, Macy’s, AMC, or any of the other companies that WSB is promoting have fundamentals to support these surging stock prices. At some point, reality has to set in.

The sudden surge has drawn questions from regulators, who are monitoring trading amid fears of illegal activity. However, the amateur investors say they are just playing Wall Street at its own game. In online forums they accused Robinhood of enacting its own form of market manipulation by restricting purchases of GameStop and other shares.

The issue has also caught the attention of the White House and other officials. Press secretary Jen Psaki said President Joe Biden’s economic team, including newly-appointed Treasury Secretary Janet Yellen, was “monitoring the situation”.

US stock exchange Nasdaq’s chief executive Adena Friedman said exchanges and regulators should watch whether anonymous social media posts could be driving “pump and dump” schemes.

Jacob Frenkel, a former lawyer at the Securities and Exchange Commission, the main US financial regulator, said:

“Such volatile trading fuelled by opinions where there appears to be little corporate activity to justify the price movement is exactly what SEC investigations are made of.”

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