'Unacceptable': Trading platforms ban GameStop amid frenzy
Popular US trading platform Robinhood has banned the buying of shares in Texas-based video game retailer GameStop, amid its sky-high price moves, prompting outrage from US senators.
The platform also banned Nokia, Blackberry and movie theatre chain AMC - all stocks that are benefiting from a surge in trading activity from social media users on Reddit and Twitter in what began as a move against hedge fund managers.
“Our mission at Robinhood is to democratize finance for all,” Robinhood stated in a blog post.
“We continuously monitor the markets and make changes where necessary. 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.”
Another platform, Interactive Brokers, has confirmed a similar move, while others are rumoured to have also placed restrictions.
GameStop started the month at around US$21 per share, and is now sitting at around US$235 per share. It was experiencing a steady rise in share price as its executive board went through some significant changes and the company announced a partnership with Microsoft.
It also experienced a US$4 billion increase in market cap after Tesla CEO Elon Musk tweeted out “Gamestonk!!”
Hedge fund managers who short the stock, that is, borrow it from brokers to sell it high, and purchase it back when the stock is lower to return it, were buying in to take advantage of the trend.
However, Reddit users on WallStreetBets congregated to buy into the stock, causing its price to inflate and for hedge fund managers to be forced to buy back the stocks at a higher price, effectively losing out.
But with trading platforms banning traders from buying these stocks, and only allowing users to sell their positions, retail traders who initiated the fight are now losing out too.
Founder of WallStreetBets, Jaime Rogozinksi, took to Reddit to question the move, asking “How free exactly is the market?”
“Why are the brokers taking actions? What are the forces behind it? Obviously they’re pressured under it. It doesn’t make sense for Robinhood to do something like that given their target demographic,” Rogozinksi told Yahoo Finance Live.
The founder of Barstool Sports, Dave Portnoy, also questioned the move, tweeting: “"Either @RobinhoodApp allows free trading like they say they do or they die. It's really that simple.”
It even prompted outrage from US senators Alexandria Ocasio-Cortez and Ted Cruz, who took to Twitter to condemn the move.
“This is unacceptable,” Ocasio-Cortez said. “Fully agree,” US Senator Ted Cruz responded. Musk also tweeted in support of retail traders, replying “Absolutely” to Ocasio-Cortez’s tweet.
Democrat Rep. Ro Khanna of California released a statement, saying: “This entire episode has demonstrated the power of technology to democratize access to American financial institutions, ultimately giving far more people a say in our economic structures.
“This also showed how the cards are stacked against the little guy in favor of billionaire Wall Street Traders.”
Punters took to Twitter to express their frustrations, with one using saying the move was “unbelievable” and “surreal”.
It’s ironic that they call themselves @RobinhoodApp when they steal from the poor and give to the rich.
— Dan Go (@FitFounder) January 28, 2021
A class action has since be filed against Robinhood in the southern district of New York for delisting GameStop.
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