An army of retail investors that has routed Wall Street’s professionals in recent days was dealt a blow on Thursday, after online brokerages restricted purchases of red-hot GameStop and other stocks that had soared this week, Reuters informed.
But the shares rebounded in after hours trading, resuming their advances after Robinhood Markets Inc and Interactive Brokers said they planned to lift the restrictions on Friday.
Retail investors, celebrities and policymakers had denounced Thursday’s restrictions and participants in online forums seethed, accusing the trading platforms of seeking to protect Wall Street’s interests at the expense of smaller investors.
“Robin Hood: a parable about stealing from the rich to give to the poor. Robinhood: an app about protecting the rich from being short squeezed by the poor,” Jake Chervinsky, a lawyer for fintech company Compound, wrote on Twitter.
Robinhood reversed course by the end of the day and said limited buying in the stocks would resume on Friday. Shares of retail favorites including GameStop and AMC Entertainment, which erased an early surge on news of the restrictions then rose after hours.
“In order to protect the firm and protect our customers we had to limit buying in these stocks,” Robinhood chief executive Vlad Tenev said in an interview with CNBC. “We absolutely did not do this at the direction of any market-maker or any hedge fund or anyone we route to or other market participants.”
Robinhood has drawn down some of its credit lines with banks, tapping at least several hundred million dollars from lenders including JP Morgan Chase and Co and Goldman Sachs Group Inc, Bloomberg reported on Thursday, citing sources.
The firm did not immediately respond to a request for comment, but in a blog post earlier it said that volatility affected its obligations to hold capital and clearinghouse deposits. But Tenev said there was no liquidity crisis.
The buying restrictions, and their partial reversal, marked a turn in a battle that many have framed as a showdown between hedge funds and other institutions against retail investors.
Until Thursday, it appeared retail traders had the upper hand. Coordinating on forums such as Reddit’s Wallstreetbets, the small investors forced hedge funds to unwind short positions that had bet on the decline of shares in companies such as GameStop and American Airlines. That activity resulted in a short squeeze that sent the shares soaring.
GameStop, the video game retailer whose 1,700% rally has been at the heart of the slugfest in the past week, initially rallied to more than $480 a share on Thursday, Refinitiv data showed. It closed down around 44% at $193.60
AMC’s value was cut by nearly half and Koss Corp dropped by around a third.
“The Robinhood ban on those stocks have put a pretty good end to (the rally),” said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas. “Everybody’s trying to hit the exit button at the same time.”
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