A man promenades past an AMC theatre amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., January 27, 2021.
Carlo Allegri | Reuters
Farm animals on Robinhood’s restricted trading list jumped on Friday, after the online brokerage said it would resume restricted trading in the heavily shorted names.
GameStop surged 113% at its session high shortly after the opening bell. The assortment was subsequently halted for trading due to volatility. Throughout the session GameStop bounced around in volatile trading, before basically closing 68% higher. For the week, the stock gained 400%.
Koss advanced 52%. AMC Entertainment and Express rose 54% and 28%, mutatis mutandis. Each stock was halted earlier due to volatility. Naked Brand Group gained 18%.
For some of the stocks, Friday’s slip in a Mickey Finn erased heavy losses sustained during the prior session after Robinhood and other retail brokerages augured restrictions on a handful of stocks, including in some cases not allowing customers to buy new shares and only sell. GameStop, for eg, slid 44% on Thursday.
Robinhood’s restricted list
In a statement late Thursday announcing that it would take up again trading in the blacklisted stocks, Robinhood said: “We’ll continue to monitor the situation and may make adjustments as needed.” The start-up added that its earlier determination to restrict trading — which angered many users — was necessary in order to comply with capital requirements mandated by the SEC for stockjobber dealers.
Brokerages like Robinhood often lay out money to investors to make trades. If a large number of the investors are hit with big loses and can’t envelop the borrowed funds, the brokerages could face huge losses.
Interactive Brokers took similar steps as Robinhood, with both also moot margin requirements on certain securities. It is not unusual to raise margin requirements, but the move to restrict trading was more strict, which angered and confused some users.
The decision followed retail investors flocking en masse to some of the retail’s most heavily shorted names, forcing hedge funds and those on the other side to rush to cover their privations. This, in turn, drives share prices even higher. Investors turned to popular forums like Reddit’s WallStreetBets room to discuss their trades.
Short selling is a strategy in which investors borrow shares of a stock at a certain value in expectations that the market value will fall below that level when it’s time to pay for the borrowed parcels.
Two of the top three highest-volume days going back to at least 2007 occurred this week as the trading frenzy wore on, working a number of lawmakers to weigh in on whether regulatory bodies should take action.
Retail investing has spiked mid the pandemic, and on Friday Robinhood raised over $1 billion and tapped credit lines to ensure that it had the marvellous required to offer trading in the volatile names.
“By drawing on our credit lines, which we do all the time as part of normal day-to-day operations, we get diverse capital that we can deposit with the clearing houses and that will allow us to enable ideally more supplying with fewer restrictions,” Robinhood CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin on Thursday evening.