Brokers took steps to restrict the trading in GameStop stock and options and other related names caught up in a flurry of trading activity that has captivated the attention of Wall Street and caused big losses for hedge funds. In some cases, investors would only we able to sell their positions and not open new ones.
Free-stock trading pioneer Robinhood and Interactive Brokers both made efforts to curb the wild trading activity in heavily shorted names like GameStop, AMC Entertainment, BlackBerry and Koss on Thursday.
Initially, shares of GameStop reversed course and slid quickly into negative territory as word of the trading restrictions spread. The stock, which traded above $500 at one point in premarket trading, was below $290 per share shortly after the opening bell.
However, shares of the brick-and-mortar video game retailer last rose 15%.
“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 $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities,” Robinhood said in a statement.
Raising margin requirements increases how much money an investor using leverage and derivatives must have in their brokerage account after a stock purchase.
“As of midday yesterday, (1/27/2021) Interactive Brokers has put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the extraordinary volatility in the markets. In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice. We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only. We will continue to monitor market conditions and may add or remove symbols as may be warranted,” Interactive Brokers told CNBC.
Shares of GameStop have ballooned more than 400% this week and nearly 1,750% this year thanks to emboldened retail investors in Reddit chat rooms trying to stick it to Wall Street pros. The rookies are piling into names heavily shorted by hedge funds, squeezing the stocks higher as the institutions rush to cover their losses. Shares of AMC Entertainment are up nearly 300% this week.
The steps by Robinhood and Interactive Brokers taken Thursday were even more drastic than what brokers did earlier in the week. TD Ameritrade and Charles Schwab raised margin requirements on Wednesday.
Robinhood customers took to Twitter to express their outrage surrounding the decision. Robinhood has made a name for itself through its mission to democratize investing for everyone. The Silicon-Valley startup with more than 13 million users pioneered free trading, forcing the entire brokerage industry to drop commissions in late 2019.
“Either #Robinhood allows people to trade freely in the market or they will lose millions of users #ToTheMoon #GME #AMC #NAKD,” one twitter user wrote.
“Robinhood canceled stock orders on #gme #amc #NOK etc…. There should be a class action lawsuit. I thought we had a free market. So Wall Street is OK with me losing hundreds of dollars, so that rich investors can’t be called out on their risks…. #wallstreetbets,” another user said.
Atom Finance told CNBC that 10.96% of its clients on Robinhood traded GameStop’s stock on Monday when the wild moves took off. The research firm said 11% of Interactive Broker clients trade GameStop.
Hedge fund Melvin Capital closed out its short position in GameStop on Tuesday after taking huge losses as a target of the army of retail investors. Citadel and Point72 have infused close to $3 billion into Gabe Plotkin’s hedge fund to shore up its finances.
The Reddit crew is banding together to rally certain stocks in what some say as a push back against the Wall Street establishment. Its too be seen if the frustrated investors will stick with their brokers amid the change in policies.
