- GameStop’s unprecedented rally has come to a crashing halt after financial app Robinhood put a limit on trading
- Shares in the gaming company have soared almost 1700 per cent in the last couple of weeks
- Robinhood cited “extraordinary circumstances in the market” as the reason for temporarily limiting the trading of some stocks
- Robinhood was quickly hit with a class-action lawsuit, alleging that the app had deprived its estimated 10 million retail investors of the ability to invest in the open-market
- However, Robinhood said it will allow some buying of GameStop shares and other stock on Friday, New York time
- GameStop fell more than 44 per cent to US$193.60 per share on the New York Stock Exchange yesterday, after opening at US$265 and hitting a high of US$483
GameStop’s unprecedented rally has come to a crashing halt after financial app Robinhood put a limit on trading, causing the company’s shares to plummet by almost half.
Shares in the gaming company have soared almost 1700 per cent in the last couple of weeks, as retail investors — driven by the Reddit forum WallStreetBets and its now four million users — initiated a buying frenzy, taking advantage of short positions established by major hedge funds.
In a statement on its website, Robinhood cited “extraordinary circumstances in the market” as the reason for temporarily limiting the trading of some stocks, which also included American Airlines, AMC Entertainment, Nokia, BlackBerry, Express and others.
“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,” the app said.
“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.”
Robinhood was quickly hit with a class action lawsuit, alleging that the app had deprived its estimated 10 million retail investors of the ability to invest in the open market.
“Since pulling the stock from their app, GME prices have gone up, depriving investors of potential gains,” the lawsuit added.
However, Robinhood said it will allow some buying of GameStop shares and other stock on Friday, New York time.
“Starting tomorrow, we plan to allow limited buys of these securities. We’ll continue to monitor the situation and may make adjustments as needed.”
In a tweet, Mike Novogratz, CEO of crypto-focused Galaxy Investment Partners, said: “In all likelihood, Robinhood halted trading because the clearing house where they clear trades forced them to because they don’t have enough balance sheet capital for the enormous amount of trades being processed.”
Interactive Brokers has taken similar trade-suppressing measures, with its billionaire Chairman Thomas Peterffy saying the decision was designed to safeguard the market and the clearing firms that settle the trades.
“We are worried about the integrity of the marketplace and the clearing system,” he said on CNBC’s Closing Bell.
GameStop fell more than 44 per cent to US$193.60 per share on the New York Stock Exchange yesterday, after opening at US$265 and hitting a high of US$483. That said, after-hours trading suggests its shares have made back some of those losses to the effect of roughly 70 per cent.