Robinhood abruptly restricts transactions for GameStop stock

CATHERINE THORBECKE
·5 min read

The unprecedented rally of GameStop stock, propelled largely by retail investors, faced a new hurdle Thursday after trading platforms including Robinhood restricted users from purchasing shares of the electronics retailer.

In addition to GameStop stock, the Robinhood also restricted certain transactions for other stock touted by the sub-Reddit page r/wallstreetbets including shares of AMC Theaters, BlackBerry and Bed Bath & Beyond.

"We continuously monitor the markets and make changes where necessary," Robinhood said in a company blog post. "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."

When many Robinhood users logged in Thursday, they were informed they could no longer buy shares of GameStop but could still sell them -- which would essentially lower the price.

PHOTO: A man talks on a cell phone outside a GameStop store in Gurnee, Ill., Dec. 10, 2019. (Tannen Maury/EPA via Shutterstock)
PHOTO: A man talks on a cell phone outside a GameStop store in Gurnee, Ill., Dec. 10, 2019. (Tannen Maury/EPA via Shutterstock)

Robinhood's blog post did not provide much more information as to the reason for these abrupt restrictions, but touted its finance "educational resources."

"Amid significant market volatility, it’s important as ever that we help customers stay informed," the company stated.

Robinhood later reversed course, saying late Thursday it would "allow limited buys of these securities" on Friday.

"We’ll continue to monitor the situation and may make adjustments as needed," the company said in a separate blogpost. "To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to."

MORE: How Reddit users sent GameStop stock soaring, upending the market

Fellow trading platform TD Ameritrade also confirmed to ABC News on Thursday that it had "placed restrictions on some transaction" for GameStop stock.

"TD Ameritrade has not halted trading in any securities. We have placed restrictions on some transactions in $GME and other securities," the company told ABC News in a statement. "Restrictions, which differ from security to security and are subject to change, may include actions like increasing margin requirements, or limiting certain types of transactions, like short sales and those that may involve unlimited risk."

"It is not uncommon for us to make such decisions, which we consider on an individual basis, in the interest of mitigating risk," the statement added. "We have been adjusting our requirements for several days as we continued to see trends indicating unusual volume in an unprecedented market environment, which appear to be divorced from traditional market fundamentals. We have made what we believe to be prudent and appropriate decisions to place some limits on certain transactions for certain securities."

The massive rally for GameStop stock stems from r/wallstreetbets, where amateur traders convened to share investing ideas and more.

PHOTO: In this photo illustration, the Robinhood logo is displayed on an iPhone on Dec. 17, 2020 in San Anselmo, Calif. (Illustration by Justin Sullivan/Getty Images, FILE)
PHOTO: In this photo illustration, the Robinhood logo is displayed on an iPhone on Dec. 17, 2020 in San Anselmo, Calif. (Illustration by Justin Sullivan/Getty Images, FILE)

The forum has grown into a community of some 5 million, and coupled with the rise of trading apps such as Robinhood, these retail investors have shown immense power over financial markets this week as they pushed the price of GameStop to unprecedented highs.

GameStop, meanwhile, has largely struggled as a retailer in recent years and traditional investors were scratching their heads at its recent stock rally. As of Wednesday, the stock had climbed nearly 2,000% since the beginning of the year.

The holds and controversy seem to have created an especially volatile day for GameStop stock on Thursday. Trading was temporarily halted multiple times for volatility.

MORE: Alexandria Ocasio-Cortez reacts to Ted Cruz's tweet on GameStop: 'You almost had me murdered'

GameStop stock plunged more than 40% to $193 a share on Thursday. The closing price on Wednesday was approximately $350 a share. Just a few weeks ago, GameStop was trading for less than $18.

The actions of the trading platforms sparked immediate backlash Thursday from lawmakers and political figures on both sides of the aisle.

New York Attorney General Letitia James, a Democrat, tweeted late Thursday that her office would be looking into the situation.

"My office is actively reviewing concerns about activity on the @RobinhoodApp, including trading related to @GameStop stock," she wrote.

Rep. Alexandria Ocasio-Cortez, D-N.Y., said the restrictions on GameStop stock were "unacceptable" Thursday morning.

"We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit," she wrote on Twitter, adding that she would support a hearing "if necessary."

Tesla chief executive Elon Musk, who helped fan the flames of the initial rally, replied to Ocasio-Cortez's tweet with: "Absolutely."

Donald Trump Jr. also weighed in, calling the system "rigged" in a tweet.

"It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street," he wrote. "This is what a rigged system looks like, folks!"

Meanwhile, a lawsuit seeking class action status was filed Thursday against Robinhood in the Southern District of New York. A Robinhood spokesperson declined ABC News' request for comment on the suit.

Sen. Sherrod Brown, D-Ohio, the incoming chair of the Senate Banking and Housing Committee, said later Thursday that he planned to hold a hearing on the "state of the stock market."

"People on Wall Street only care about the rules when they’re the ones getting hurt," Brown said in a statement. "American workers have known for years the Wall Street system is broken -- they’ve been paying the price."

"It’s time for SEC and Congress to make the economy work for everyone, not just Wall Street," Brown added.

Robinhood abruptly restricts transactions for GameStop stock originally appeared on abcnews.go.com