US regulators on Friday said they would review trading restrictions imposed by online brokerages and act on any evidence of market manipulation, as Robinhood has once again tightened restrictions on purchases of hot stocks, including GameStop.
GameStop stock took another huge step on Friday, rebounding to close 68 percent, a day after Robinhood stopped customers from buying more shares, sparking outrage among users. After the broker backed their own finances with an overnight fundraiser of $ 1 billion, the broker had allowed clients to resume their purchases on Friday morning.
Midway through the trading day, Robinhood began restricting users from buying an additional share of GameStop and other popular stocks, including AMC and BlackBerry. The previous limit was five shares in GameStop and more in other shares. “Limits can change during the day,” Robinhood said.
The US Securities and Exchange Commission weighed in earlier on Friday to say it would review the restrictions imposed by Robinhood and others to see if they could “harm investors or otherwise unduly hinder their ability to trade certain securities.”
It added that it worked with other regulators and exchanges “to ensure that regulated entities meet their obligations to protect investors and to identify and pursue potential wrongdoing.”
GameStop, a video game retailer, is one of the few stocks targeted by Reddit message board users hoping to inflict losses on hedge funds that had bet heavily against the company. After making up for all of Thursday’s losses, GameStop shares are up over 1,500 percent again since the start of the year.
Shares in AMC, the movie theater chain, fell 54 percent on Friday.
Last week’s frenzied trading has sparked concerns that a speculative bubble in stocks could trigger a sharp downturn in the market, and volatile trading conditions have prompted several key market players to take action to protect themselves. Online brokers increased margin requirements for clients – meaning they needed more money in their accounts to trade – and clearing houses made similar demands on the brokers themselves.
Clearing houses are central organizations that sit between different players and manage the risk to the market if one of the parties defaults.
The Depository Trust and Clearing Corporation, which runs the main stock clearing house, increased the total margin it needed from the industry from $ 26 billion to $ 33.5 billion on Thursday, noting that oversized trading volumes in stocks such as GameStop and AMC “ significant companies clearing these transactions. . . especially if the clearing member or its clients are mainly on one side of the market ”.
Robinhood raised $ 1 billion in debt that its investors can convert into equity, explaining that it wanted to increase the amount of cash it had to deposit with clearing houses. Ribbit Capital led the investment with Iconiq Capital, with the two groups bringing in more than $ 500 million together, the people said. Other existing investors were expected to commit the rest of the capital by the end of Friday, they said.
The SEC said market infrastructure had proven resilient during this week’s massive trading volumes, but warned that “extreme stock volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.”
Tal Cohen, Nasdaq’s head of North American markets, said the exchange was in “close dialogue” with the SEC and the Financial Industry Regulatory Authority, the organization that controls US broker dealers, to gather recent trading data.
“All investors, whether you are a hedge fund or a retailer, have the right to invest and to voice your opinion in the market. But it must be done in a way that is not manipulated and is not harmful to the market,” said Mr Cohen. “I think everyone is trying to find a balance between the desire to continue to democratize our markets and to protect investors.”
Day traders were celebrated by claiming one scalp on Friday after Citron Research said it would stop publishing short-selling analysis after two decades of pointing to overvalued companies. Andrew Left, founder of Citron, was one of GameStop’s most outspoken short sellers.
Meanwhile, American Airlines, whose shares were pushed up by day traders trying to express short sellers, took advantage of being swept up in the frenzy. It raised $ 1.1 billion by selling new shares to help cover losses from the pandemic-induced air traffic downturn.
Additional reporting by Philip Stafford, Mamta Badkar and Claire Bushey