Robinhood and Interactive Brokers have become the latest platforms to restrict the trading of several highly shorted stocks following an unrelenting trading frenzy led by retail investors and day traders.
Robinhood said in a blog post that it is restricting transactions for certain securities to position closing, including GameStop, AMC Entertainment, Blackberry, and Bed Bath and Beyond, among others. Robinhood also raised margin requirements for certain securities, it said.
“We continuously monitor the markets and make changes where necessary,” Robinhood said. “Amid significant market volatility, it’s important as ever that we help customers stay informed.”
Meanwhile, Interactive Brokers said on Twitter that it put GameStop, AMC, Blackberry, Express, and Koss Corp. option trading into liquidation due to the "extraordinary volatility in the markets." Interactive Brokers also raised margin requirements for certain stocks.
The move comes one day after TD Ameritrade became the first online broker to place restrictions on the trading of these highly shorted stocks amid a multi-day rally spearheaded by retail investors and day traders.
Shares in GameStop have jumped 1,300% so far this year, while shares in AMC popped 308%.
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The trading frenzy has led to several broker outages Wednesday, and several of the stocks, including GameStop and AMC, experienced trading halts.
The World is Watching
The unprecedented volume of trading was prompted by a new class of retail investors and day traders that have flooded the market since the beginning of the pandemic. Many of them were part of a buying boom last year as they chased struggling stocks they believed deserve a second chance. Online forums like Reddit's WallStreetBets have become a place for these new day traders to discuss the stocks.
“Individual investors are being stripped of their ability to trade on @RobinhoodApp,” the moderators of the Reddit forum wrote on Twitter. “Meanwhile hedge funds and institutional investors can continue to trade as normal. What do you call a market that removes retail investors [sic] ability to buy to save institutional investors shorts?”
Law Firm ChapmanAlbin filed a class action lawsuit on Thursday against Robinhood on behalf of users who suffered losses as a result of investing in Gamestop or AMC. The lawsuit alleged that Robinhood recruited social media influencers to encourage individuals to sign up and purchase shares of Gamestop and AMC, only to place trading restrictions on the securities a day later.
Short sellers betting against these stocks have lost billions of dollars so far. As shares of GameStop soared on retail investor-fueled euphoria, short sellers who were faced with mounting losses and high borrowing fees were forced to close their positions and buy, prompting what is known as a short squeeze.
The Biden administration, including Treasury Secretary Janet Yellen, is “monitoring the situation,” as are the SEC and FINRA. Market regulators typically do not favor day-trading manipulation of the stock market, and regulations are likely to follow.
"We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only," Interactive Brokers said on Twitter. "We will continue to monitor market conditions and may add or remove symbols as may be warranted."
Article Sources
NYSE. "NYSE Trading Halts." Accessed Jan. 28, 2021.
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