October 27, 2021

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Robinhood will allow limited buying of restricted securities Friday, GameStop jumps after hours – CNBC

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The logo for Robinhood is displayed on a smartphone in an arranged photograph.

Gabby Jones | Bloomberg | Getty Images

Shares of GameStop, AMC and others jumped in extended trading on Thursday after Robinhood said it will resume limited trading of previously restricted securities on Friday.

“Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed,” Robinhood said in a statement.

GameStop shares rebounded in extended trading following the Robinhood decision. The stock gained 32% to trade at $255 in after hours trading, after closing down 44% at $193.60 during regular hours Thursday.

Robinhood said its decision to restrict trading — which angered many users — was in order to comply with capital requirements mandated by the SEC for broker dealers.

“These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today,” the company said.

Amid the trading frenzy the company, which is widely expected to go public this year, has tapped some of its credit lines, according to someone familiar with the matter.

As retail investors piled into the market Robinhood, in addition to other retail brokerages, restricted trading in several names on Thursday. The free-stock trading app said that in some cases, investors would be able to only sell their positions and not open new ones.

In addition to GameStop, the restricted trading sent shares of AMC Entertainment and BlackBerry tumbling 56% and 41%, respectively, on Thursday.

Interactive Brokers took similar steps, and both it and Robinhood raised margin requirements on certain securities. It is not unusual to raise margin requirements, but the move to restrict trading was unusual and more extreme, which angered and confused some users.

Raising margin requirements increases how much money an investor using leverage and derivatives must have in their brokerage account after a stock purchase. TD Ameritrade and Charles Schwab raised margin requirements on Wednesday.

The influence of retail investors — most apparent in GameStop — has captivated the Street in recent days, and speaks to a new class of traders who grew up amid the pandemic.

Individual investors are creating short squeezes by piling into names that hedge funds are betting against, forcing the funds to rush to cover their losses. This typically pushes shares even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has more than 3 million members. Some view it as small, retail investors pushing back against the Wall Street establishment.

Amid the meteoric pops — and then drops — some lawmakers are calling for an investigation. The Democratic leaders of the House Financial Services Committee and the Senate Banking Committee said they would hold hearings.

Rep. Alexandria Ocasio-Cortez, D-N.Y., was among the lawmakers to comment on the trading activity, saying in a tweet that Robinhood’s decision to limit trading was “unacceptable.” Texas Sen. Ted Cruz reposted Ocasio-Cortez’s tweet to his own page, writing, “Fully agree.”

Robinhood, whose mission is to democratize investing for all, has seen its users jump amid the pandemic, and the app now boasts more than 13 million users. Its expansion has come with some growing pains, including several outages on key market days. It’s also increasingly attracted the attention of lawmakers

Meanwhile, Sen. Elizabeth Warren said chaotic trading in the market was due to a lack of oversight from the SEC.

“We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules,” she said to CNBC. “To have a healthy stock market, you’ve got to have a cop on the beat.” The SEC did not respond to CNBC’s request for comment.

Here’s the full statement from Robinhood:

“This past year, we’ve seen the financial markets become a voice for the voiceless. We’ve seen a new generation of people come into the markets, sparking conversations about what it means to be an investor. Our customers have shown the world that investing is for everyone—not just institutional investors and hedge funds.

Amid this week’s extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.

Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed.

To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We’re beginning to open up trading for some of these securities in a responsible manner.

We stand in support of our customers and the freedom of retail investors to shape their own financial future. Democratizing finance has been our guiding star since our earliest days. We will continue to build products that give more people—not fewer—access to our financial system. We’ll keep monitoring market conditions as we look to restore full trading for these securities. We will update this Help Center article with the latest changes.

We are deeply grateful to our customers.”

– CNBC’s Maggie Fitzgerald, Leslie Picker, Tucker Higgins and Thomas Franck contributed reporting.

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