Robinhood and Interactive Brokers have become the latest platforms to restrict trading in several very short stocks following a relentless trading frenzy by retail investors and day traders.
Robinhood said in a blog post that it limits transactions for certain titles when positions are closed, including GameStop, AMC Entertainment, Blackberry and Bed Bath and Beyond, among others. Robinhood has also raised margin requirements for certain securities, he said.
“We are constantly monitoring the markets and making changes if necessary,” Robinhood said. “Amid high market volatility, it’s more important than ever that we help customers stay informed.”
Meanwhile, Interactive Brokers said on Twitter that it liquidated the options trading of GameStop, AMC, Blackberry, Express and Koss Corp. due to “extraordinary market volatility”. Interactive Brokers has also increased margin requirements for certain stocks.
The move comes a day after TD Ameritrade became the first online broker to impose restrictions on trading these very short stocks amid a multi-day rally led by retail investors and day traders.
GameStop shares have jumped 1,300% so far this year, while AMC shares have jumped 308%.
The trading frenzy led to several broker outages on Wednesday, and several stocks, including GameStop and AMC, experienced trading halts.
The world is watching
The unprecedented trading volume has been driven by a new class of retail investors and day traders who have flooded the market since the start of the pandemic. Many of them were part of a buying boom last year as they hunted troubled stocks they thought deserved a second chance. Online forums like Reddit’s WallStreetBets have become a place for these new day traders to discuss stocks.
“Individual investors are being deprived of their ability to trade on @RobinhoodApp”, Reddit forum moderators wrote on Twitter. “Meanwhile, hedge funds and institutional investors can continue trading as normal. What do you call a market that eliminates retail investors? [sic] ability to buy to save institutional investors’ shorts?
Chapman Albin Law Firm filed a class action lawsuit Thursday against Robinhood on behalf of users who suffered losses as a result of investments 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 impose trading restrictions on the titles a day later.
Short sellers betting against these stocks have lost billions of dollars As GameStop shares soared on euphoria fueled by retail investors, short sellers who faced mounting losses and high borrowing costs were forced to close their positions and buy , which caused what is called a short press.
The Biden administration, including Treasury Secretary Janet Yellen, is “monitoring the situation,” as are the SEC and FINRA. Market regulators generally do not favor manipulation of the stock market through day trading, and regulations are likely to follow.
“We don’t believe this situation will ease until exchanges and regulators shut down or put certain symbols into liquidation only,” Interactive Brokers said. said on Twitter. “We will continue to monitor market conditions and may add or remove symbols as needed.”
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