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Shares of GameStop, AMC and others jumped into expanded trading on Thursday after Robinhood said it would resume limited trading of previously restricted securities on Friday.
“We plan to allow limited purchases of these bonds from tomorrow. We will continue to monitor the situation and make adjustments if necessary,” Robinhood said in a statement.
GameStop shares traded after hours after the Robinhood decision. The stock rose 28% and traded at $ 247 after hours trading, after closing 44% at $ 193.60 on Thursday.
The company said its decision to restrict trading – which angered many users – had to meet the capital requirements that the SEC had to provide to broker-dealers.
“These requirements exist to protect investors and the markets, and we take our responsibilities to meet them seriously, including through the measures we have taken today,” the company said.
Amid the madness of trading activities by retail investors, Robinhood, in addition to other retail brokerages, on Thursday restricted trading in several names. The free stock trading app said that in some cases investors would only be able to sell their positions and not open a new position.
In addition to GameStop, the limited trading on Thursday caused shares of AMC Entertainment and BlackBerry to tumble by 56% and 41% respectively.
Interactive brokers have taken similar steps, as well as Robinhood, increasing the margin requirements for certain securities. TD Ameritrade and Charles Schwab increased margin requirements on Wednesday.
Increasing the margin requirements increases the amount of money an investor with leveraged financing and derivatives should have in their brokerage account after a stock purchase.
The influence of retail investors – the clearest in GameStop – has captivated the street over the past few days and speaks to a new class of traders who grew up in the midst of the pandemic.
Individual investors create short pressures by raising names against which hedge funds bet, forcing the funds to cover their losses. It usually pushes shares even higher. Small investors are promoting their activities on the WallStreetBets Reddit board, which has more than 3 million members. Some see it as small, small investors pushing back the Wall Street business.
Amid the meteoric jump – and then decline – some lawmakers are calling for an investigation. Amid a flurry of lawmakers, Democratic leaders from the House Financial Services Committee and the Senate Banking Committee have said they will hold hearings.
Rep. Alexandria Ocasio-Cortez, DN.Y., was one of the legislators commenting on the trading activity and saying in a tweet that Robinhood’s decision to restrict trade was “unacceptable”. Texas Senator Ted Cruz posted Ocasio-Cortez’s tweet on his own page, writing, “Agree completely.”
Here is the full statement from Robinhood:
“Over the past year, we’ve seen the financial markets become a voice for the voiceless. We’ve seen a new generation of people enter the market, sparking conversations about what it means to be an investor. Our customers have the world-class investment is for everyone – not just institutional investors and hedge funds.
Amid the extraordinary conditions in the market, we made a difficult decision today to temporarily limit the purchase for certain bonds. As a brokerage firm, we have many financial requirements, including SEC net capital liabilities and clearing deposits. Some of these requirements vary according to the volatility in the markets and can be significant in the current environment. These requirements exist to protect investors and the markets, and we take our responsibilities to comply with them seriously, including through the measures we have taken today.
As of tomorrow, we plan to allow limited purchases of these securities. We will continue to monitor the situation and make adjustments if necessary.
To be clear, this was a risk management decision and was not taken in the direction of the market makers we are heading. We start trading in a responsible way with some of these securities.
We support our clients and the freedom of retail investors to shape their own financial future. Democratization of finance has been our leading star since our earliest days. We will continue to build products that give more people – not less – access to our financial system. We will constantly monitor market conditions as we want to restore the full trading of these bonds. We will update this Help Center article with the latest changes.
We are deeply grateful to our customers. ‘
CNBC’s Maggie Fitzgerald and Tucker Higgins reported.