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REUTERS: An army of retail investors that has beaten Wall Street professionals in recent days took a hit Thursday after online brokerages Robinhood Markets Inc and Interactive Brokers restricted trading in GameStop and other company-favorite stocks. social networks that had exploded. this week.
Shares of retail favorites, including GameStop and AMC Entertainment, tumbled on the news and broader markets soared higher.
Retail investors, celebrities and lawmakers denounced the restrictions and online forums were seething with anger, accusing trading platforms of trying 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.
The trade restrictions 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. Coordinating on forums like Reddit’s popular Wallstreetbets, his concentrated buyout forced hedge funds to undo positions betting on falling shares in companies like GameStop and American Airlines, sending their shares skyrocketing.
GameStop, the video game retailer whose 1,700 percent rally has been at the heart of last week’s fight, initially rallied to more than $ 480 a share, Refinitiv data showed. Lastly, it was down about 60 percent to $ 265.
AMC’s value was cut in half and Koss Corp was cut by a third.
“Robinhood’s ban on those stocks has put a pretty good end to (the rally),” said Dennis Dick, owner trader at Bright Trading LLC in Las Vegas. “Everyone is trying to hit the exit button at the same time.”
Citing market volatility and the need to keep investors informed, Palo Alto-based Robinhood said in a blog that it was halting trading in viral stocks such as American Airlines, Nokia, and AMC and increasing margin requirements for certain values.
Two clients sued Robinhood over the trade ban, seeking damages.
Interactive Brokers, another online trading platform, also restricted the trading of those shares.
“We don’t think this situation will go away until exchanges and regulators stop or put only certain symbols on liquidation,” he said.
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. HIT EFFECTS American Airlines joined the list of profitable stocks as small-time traders expanded their battle with Wall Street institutions, but it was also well below previous highs when Robinhood restricted trading. Shares of American Airlines rose 9%. It reported earnings, but investors said they weren’t enough to explain its stock movement. “It’s an irrational daily trade, nothing fundamental. Just like GameStop, Tootsie Roll, Virgin Galactic, etc.,” said Darryl Genovesi, an analyst at Vertical Research. As the “Reddit crowd” has rocked the market, a basket of stocks traded primarily by hedge funds has fallen 2.5% so far this year, while a basket that tracks retail favorites jumped 13.5%, the Goldman Sachs data showed. Before its retirement, GameStop briefly became the largest stock in the small-cap Russell 2000 index, according to Zerohedge. Dramatic jumps at GameStop, BlackBerry Ltd and AMC sparked calls for regulatory scrutiny. “When it comes to tracking short-term interests, the US markets are probably the most transparent, but there is always room for improvement,” former SEC Chairman Jay Clayton told CNBC.
US Representative Alexandria Ocasio-Cortez criticized Robinhood’s decision to restrict retail. Robinhood did not respond to requests for comment. Shares in the silver industry also caught the attention of traders. Canada’s First Majestic Silver paused in New York briefly after shares rose more than 30%.
German online brokerage Trade Republic said that trading on its platform was disrupted due to an increase in transactions from GameStop, Blackberry and other stocks.
Shares in small Australian nickel-cobalt explorer GME Resources rose, apparently driven by the similarity of its stock price to GameStop.
JP Morgan named 45 stocks that it said could be susceptible to short-term contractions and similar “brittle events,” including Macerich Co, Cheesecake Factory Inc and Stitch Fix Inc.
SHORT GRIP
US equity markets rallied more than 1%. On Wednesday, the short contraction, where a rising stock price forces traders to abandon loss-making “short” bets, drove a 2% drop in the New York S&P 500 as investors sold other assets to cover your losses.
Short sellers have an estimated $ 71 billion loss on positions in US companies this year, data from analytics firm Ortex showed.
In a Reddit discussion, thousands of participants responded “We love these actions” to a post asking for more GameStop purchases.
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.
Long ridiculed by market professionals as “dumb money,” the group of traders, some of them former bankers working for themselves, has grown into an increasingly powerful force worth 20 percent of orders. of stocks last year, UBS data showed.
The steady rise in equity markets over the past decade, fueled by a steady stream of newly created money from major central banks, has made it less risky to bet on rising stocks.
The market turmoil caught the attention of the White House, with President Joe Biden’s economic team, including Treasury Secretary Janet Yellen, “monitoring the situation.”
(Report by Sagarika Jaisinghani, Shriya Ramakrishnan, Medha Singh, Ismail Shakil Sruthi Shankar and Sanjana Shivdas in Bengaluru, Michelle Price, Anna Irrera, Saqib Iqbal Ahmed and April Joyner in New York; and Thyagaraju Adinarayan in London; additional report by Chuck Mikolajczak, Jeff Lewis, Tracy Rucinski, Devik Jain, Ankit Ajmera; Writing by Patrick Graham and Nick Zieminski; Editing by Saumyadeb Chakrabarty, David Gregorio and Daniel Wallis)
