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NEW YORK: An army of retail investors that has beaten Wall Street professionals in recent days took a hit on Thursday (Jan 28), after online brokerages, including Robinhood Markets, restricted trading on GameStop and other stocks that had skyrocketed this week.
Retail investors, celebrities and policymakers condemned the restrictions. Participants in online forums were enraged and accused the trading platforms of seeking to protect Wall Street’s interests at the expense of smaller investors.
“Robin Hood – A Parable About Stealing From The Rich To Give To The Poor. Robinhood – An App About Protecting The Rich From Being Squeezed By The Poor,” Jake Chervinsky, a lawyer for fintech company Compound, wrote on Twitter.
Robinhood changed course at the end of the day and said limited trading in the shares would resume on Friday. Shares of retail favorites including GameStop and AMC Entertainment, which erased an early wave of news of the restrictions and then surged after hours.
The chief executive of brokerage app Robinhood said he made the “difficult decision” to restrict the purchase of more than a dozen volatile stocks, to protect the company and its clients.
“We absolutely did not do this under the direction of any market maker or hedge fund … The reason we did it is that Robinhood, as a brokerage firm, we have a lot of financial requirements,” Vladimir Tenev of Robinhood said on CNBC.
“To protect the company and protect our clients, we had to limit the purchase of these shares.”
The restrictions and their partial reversal mark a turning point in a battle that many have framed as a showdown between hedge funds and other institutions against retail investors.
As of Thursday, it appeared that retailers had the upper hand. By coordinating forums like Reddit’s Wallstreetbets, small investors forced hedge funds to undo the short positions they had bet on falling stocks in companies like GameStop and American Airlines. That activity resulted in a small contraction that sent stocks skyrocketing.
GameStop, the video game retailer whose 1,700 percent recovery has been at the heart of last week’s fight, initially rallied to more than $ 480 a share on Thursday, data from Refinitiv showed. It closed about 44 percent at $ 193.60.
AMC’s value was cut by almost half and Koss Corp fell by about a third.
“Robinhood’s ban on those stocks has put a pretty good end to (the rally),” said Dennis Dick, owner trader of Bright Trading in Las Vegas. “Everyone is trying to hit the exit button at the same time.”
SOME TRADING TO RESTART ON FRIDAY
Citing market volatility and the need to keep investors informed, Robinhood, an app based in Menlo Park, California, said in a blog that it was halting trading in viral stocks like Gamestop, American Airlines and AMC and increasing requirements. margin for certain values.
Two clients sued Robinhood over the trade ban, seeking damages.
Robinhood said in a later post that from Friday it planned to allow limited purchases of these securities.
Some users complained on Twitter that Robinhood had notified them that it was selling its shares, without their consent. A Robinhood spokeswoman did not immediately respond to a request for comment.
Interactive Brokers, another online trading platform, also restricted the trading of those shares.
Robinhood has seen a trading boom during the coronavirus pandemic as more homebound consumers began trading stocks online. The application now has more than 13 million users.
Social media chat rooms are beginning to look like squeak boxes on the trading floors as a new generation of retail traders gain influence.
US Senator Sherrod Brown, incoming Democratic chair of the Senate Banking and Housing Committee, said he will hold a hearing on the current state of the stock market.
“People on Wall Street only care about the rules when they are the ones who are hurt,” Brown said in a statement.
KNOCK-ON EFFECTS
Before its retirement, GameStop briefly became the largest stock in the small-cap Russell 2000 index, according to Zerohedge.
Lawmakers from the two main parties in Congress, including Democrat Alexandria Ocasio-Cortez and Republican Ted Cruz, criticized Robinhood’s decision to restrict retail. Robinhood did not respond to requests for comment.
Other stocks dragged down by the drama were Canadian First Majestic Silver, Blackberry, Australian nickel-cobalt explorer GME Resources.
JP Morgan named 45 stocks that it said could be susceptible to similar brief crunches and “brittle events,” including Macerich, Cheesecake Factory and Stitch Fix.
US equity markets rallied more than 1% on Thursday after Wednesday’s short contraction triggered a 2% drop in the New York S&P 500 as investors sold other assets to cover their losses.
Short sellers have an estimated $ 71 billion loss on positions in US companies this year, data from analytics firm Ortex showed.
Long ridiculed by market professionals as “dumb money,” the group of retail traders, some of them former bankers working for themselves, has grown into an increasingly powerful force worth 20 percent of the money. stock orders last year, UBS data showed.
The war started last week when Citron Capital’s hedge fund short seller Andrew Left bet against GameStop and encountered a barrage of retailers betting the other way. He said Wednesday that he had abandoned the bet.
