Popular stockbroker services were accused of manipulating the market by angry social media users Thursday after Robinhood, Interactive Brokers, and others took steps to restrict trading of GameStop, AMC Entertainment, Nokia, and other "volatile" stocks.
The financial world was captivated this week by the sudden and tremendous rise of video game retailer GameStop's stock price after millions of individual, non-professional "retail" investors decided to buy the stock in an attempt to "squeeze" hedge fund investors planning to short it. These retail investors, who congregate to discuss their trades on the website Reddit in a forum called WallStreetBets, were successful in driving GameStop's stock up from about $17 last week to a high of $376 on Wednesday.
The hedge fund investors attempting to short GameStop stock lost more than $5 billion because of the WallStreetBets campaign. After the news of what was happening went mainstream and some financial analysts began accusing the retail investors of WallStreetBets of manipulating the market, popular stockbroker services used by retail traders began restricting trades of GameStop and other shorted stocks caught up in the buying frenzy. Customers awoke on Thursday morning to find that they could no longer buy GameStop, AMC Entertainment, BlackBerry, Nokia, and other stocks, and could only close their current positions.
Robinhood, a company that prides itself on "democratizing finance for all" by letting customers trade stocks on their smartphone app, issued the following statement:
"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 $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities."
Margin requirements are the amount of money an investor using Robinhood must have in their account in order to buy a stock.
Interactive Brokers, another stock trading service, also made a statement explaining the trade restrictions to CNBC:
"As of midday yesterday, (1/27/2021) Interactive Brokers has put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the extraordinary volatility in the markets. In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice. We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only. We will continue to monitor market conditions and may add or remove symbols as may be warranted."
Customers are furious. Users on the WallStreetBets forum immediately accused Robinhood and other brokers of preventing them from buying these stocks to protect the hedge funds and Wall Street "suits." Some have called for a class action lawsuit against Robinhood, writing "allowing people only to sell is the definition of market manipulation." Others are encouraging other investors to hold their positions, reasoning that Robinhood and other brokers are trying to incentivize users to sell their stocks to bring GameStop and other surging stock prices down.
Barstool Sports President Dave Portnoy became one of the fiercest critics of Robinhood after he said on Wednesday that he put $1 million into AMC and Nokia stock.
Wait are people not being allowed to buy $amc and $nok?— Dave Portnoy (@Dave Portnoy) 1611840217.0
I will burn @RobinhoodApp to the ground if they shut down free market trading.— Dave Portnoy (@Dave Portnoy) 1611840441.0
Portnoy blasted Robinhood, accusing the company of siding with the Wall Street establishment over ordinary people who are just trying to get rich.
And it turns out @RobinhoodApp is the biggest frauds of them all. “Democratizing finance for all” except when we m… https://t.co/OsFR3LgMXc— Dave Portnoy (@Dave Portnoy) 1611840553.0
Somebody is going to have to explain to me in what world @RobinhoodApp and others literally trying to force a crash… https://t.co/2C8xktqPSU— Dave Portnoy (@Dave Portnoy) 1611840722.0
The controversy has made strange bedfellows. People on the right and the left are uniting to criticize Robinhood and defend the rights of retail traders to take on Wall Street.
It took less than a day for big tech, big government and the corporate media to spring into action and begin collud… https://t.co/58aXqa5Amv— Donald Trump Jr. (@Donald Trump Jr.) 1611842821.0
Straight up collusion to protect the suits in suites. @RobinhoodApp @stoolpresidente https://t.co/RAZ1iWCTqE— Jason Johnson (@Jason Johnson) 1611843058.0
Robinhood is restricting GameStop trading to help their Wall Street Buddies from going under. Yesterday Wall Street… https://t.co/kL1I3cR9vt— Kyle Kashuv (@Kyle Kashuv) 1611846056.0
So @RobinhoodApp, an app named after the guy who took from the rich and gave to the poor, is now blocking the littl… https://t.co/INABtHSBM7— Erick Erickson (@Erick Erickson) 1611845407.0
More like... Transfer any stock you have with Robinhood to another account... Withdraw your money from Robinhood'… https://t.co/qIylizJlLq— Yashar Ali 🐘 (@Yashar Ali 🐘) 1611845790.0
Very disappointed in @RobinhoodApp! They said they allow free trading but are now blocking users from buying specif… https://t.co/lONZtnpG97— Rosanna Pansino (@Rosanna Pansino) 1611847479.0