The popular retail trading app Robinhood restricted sales on Thursday for several popular stocks that have gone viral this week. Retail traders found on Thursday morning that, at market open, the app would not allow the purchase of stock from companies like GameStop (NYSE: GME), AMC Theaters (NYSE: AMC), Nokia (NYSE: NOK), BlackBerry (NYSE: BB), Naked Holdings (NASDAQ: NAKD) and several other securities in an effort to control high market volatility.
Retail traders have congregated in recent days on apps like Reddit and Twitter to purchase stock in companies that had been massively short sold by hedge funds in recent months. Short selling is a practice that allows traders to effectively bet against the odds of a public company by selling shares in that company with the expectation that the shares will continue to go down. The practice relies on shares in the company to stay low under the assumption that the company will eventually go under
GameStop, the stock that triggered the online movement, had more shares short sold than the company had available in the first place. Traders noticed the discrepancy months ago and began buying shares in the company when they were low (meaning under $10 per share). By mid-January, shares in GameStop had skyrocketed to more than $70, eventually reaching record highs this week at $483 on Thursday just before Robinhood announced it would remove the company from its app.
“We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term,” wrote Robinhood in a statement before revealing it would limit retail trading on popular securities that have triggered historic wealth redistribution. “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,” the statement read.
Hours later, a class action lawsuit was filed against Robinhood in New York’s Southern District, claiming that the trading app allegedly engaged in market manipulation as a favor to the hedge funds that are hemorrhaging cash in the wake of the GameStop surge. Just this week, the hedge fund Melvin Capital that had over shorted the GameStop stock in recent months lost several billion dollars in a matter of days. The exact numbers are unclear, but the hedge fund reported a 30% loss earlier this week before receiving a $2.75 billion cash injection from Citadel LLC and Point72 Asset Management.
Global financial regulators and government officials say that they are actively monitoring the situation. The White House said on Wednesday that it is monitoring the GameStop situation. The Guardian also reports that the UK’s Financial Conduct Authority says it is aware of the situation and will “closely monitor trading in UK markets.”
Robinhood did not immediately respond to Grit Daily’s request for comment.