GameStop Back on the Rise as Robinhood Eases Trading Ban

Reuters/Inquirer.net Los Angeles / 08:08 AM January 29, 2021

A GameStop store is seen in New York, the U.S., on January 27, 2021. REUTERS/Nick Zieminski

The army of small investors behind this week’s dramatic squeeze on Wall Street hedge funds returned to drive shares in GameStop. Other hot companies higher on Friday as online broker Robinhood eased disputed trading restrictions.

Shares in the video game store chain and headphone maker Koss Corp both doubled in early deals after slumping on Thursday when several online platforms imposed buying halts, sparking a backlash from investors, celebrities, and policymakers.

Robinhood

Robinhood said on its website that it was easing the restrictions but still not allowing purchases of fractional shares in GameStop and 12 other companies, effectively meaning smaller investors have to bet more to buy in further to the trade.

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The website also showed the brokerage, which has said the surge in market volatility has forced its hand, was maintaining numerical limits on the number of shares any one account could hold in each of the companies, further hampering players with existing positions betting on more gains.

The showdown between small-time traders and professional short-sellers has drawn Congressional lawmakers’ scrutiny. The New York Attorney General is probing the White House, the Securities and Exchange Commission (SEC).

Global equity markets have also suffered as funds were forced to sell some of their best-performing stocks, including Apple Inc, to cover billions of losses.

S&P 500 futures fell another 1% early on Friday.

“My expectation is that this will blow over, and then the Robinhood crowd will look for a different target, but typically these things come in waves,” said Andrea Cicione, head of strategy at TS Lombard in London.

Reddit Anger

On Reddit forum WallStreetBets, which with almost 6 million members, is seen as having fuelled the rallies, GameStop and AMC remained overwhelmingly favored stocks.

J.P. Morgan has named 45 stocks that may be susceptible to similar “fragility events” in days to come, including real estate company Macerich Co, restaurant chain Cheesecake Factory Inc and clothing subscription service Stitch Fix Inc.

Like GameStop, AMC, and American Airlines Group Inc, all have high “short” interest ratios, making them subject to a squeeze on funds that have bet on the shares falling.

The chief executive of the London Stock Exchange, David Schwimmer, said regulators needed to be mindful of when the line was crossed into market manipulation.

“We’ve seen disruption by new technology and social media in several other industries, so in some ways, it’s not surprising to see it in financial markets,” he said.

“I will let the regulators determine whether there’s a need to take a careful look at this if it moves into the realm of market manipulation,” Schwimmer added.

Robinhood Retail-Trading Frenzy

Online broker Robinhood has been one of the hottest venues in the retail-trading frenzy, but its sudden curbs on buying set off a raft of online protests as the firm tapped credit lines to ensure it could continue trading.

The brokerage also said it had raised more than $1 billion from its existing investors, strained by the high volumes and volatility of trading this week.

A website on the short squeeze strategy set up by one WallStreetBets participant told traders with Robinhood accounts to “find a new broker asap,” listing rivals Vanguard, Ameritrade, and Fidelity, who have yet to place limits on trades.

Regarded by market professionals as “dumb money,” the pack of retail traders – some of them former bankers working for themselves – has become an increasingly powerful force in the financial world, sparking calls for greater scrutiny into trading on easy access online apps fueled by anonymous discussions on social media.

“Now we’re really figuring out what can happen when something doesn’t go their way,” said JJ Buckner, a 29-year old Robinhood trader whose YouTube live-stream got over 250,000 hits earlier this week.

(Reporting by Sagarika Jaisinghani and Medha Singh in Bengaluru; Additional reporting by Munsif Vengattil and Juby Babu in Bengaluru, Anna Irrera, Saqib Iqbal Ahmed and April Joyner in New York and Thyagaraju Adinarayan in London; Writing by Patrick Graham; Editing by Saumyadeb Chakrabarty)