Robinhood restricts stock trading in GameStop, politicians demand answers

SAN ANSELMO, CALIFORNIA – DECEMBER 17: In this photo illustration, the Robinhood logo is displayed on an iPhone on December 17, 2020 in San Anselmo, California. The Securities and Exchange Commission has charged Silicon Valley start-up company Robinhood with deceiving customers about how the company makes money. The company has agreed to pay a $65 million civil penalty. (Photo Illustration by Justin Sullivan/Getty Images)

by: Nexstar Media Wire

Posted: Jan 28, 2021 / 01:15 PM AST

Updated: Jan 28, 2021 / 12:59 PM AST

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NEW YORK (NEXSTAR) — The online trading platform Robinhood is moving to restrict trading in GameStop and other stocks that have soared recently due to rabid buying by smaller investors.

GameStop stock has rocketed from below $20 earlier this month to more than $400 Thursday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.

Among the restrictions announced by Robinhood on Thursday was that investors would only be able to sell their positions and not open new ones in some cases. Also, Robinhood will try to slow the amount of trading using borrowed money.

According to Motherboard, over half of Robinhood users own at least some stock in GameStop.

On Thursday, Alexandria Ocasio-Cortez called Robinhood’s decision “unacceptable.”

“We now need to know more about Robinhood’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” she said. “As a member of the Financial Services Cmte, I’d support a hearing if necessary.”

In a tweet, Senator Ted Cruz said he agreed with Ocasio-Cortez’s statement.

Inquiries into freezes should not be limited solely to Robinhood.

This is a serious matter. Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations – especially those allowing sales, but freezing purchases.
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021

Besides GameStop, Robinhood said trading in stocks such as AMC Entertainment, Bed Bath & Beyond, Blackberry, Nokia, Express Inc., Koss Corp. and Naked Brand Group would be affected by the new restrictions.

Some big institutions such as Citron Research and Melvin Capital had placed bets that GameStop shares would fall as the company tries to transform itself from a bricks and mortar retailer to a seller of online video games.

But smaller investors rallied to the stock. By sending the stock soaring higher, they forced the big players to cover their bets by buying the stock, increasing the stock even further.

Robinhood’s stated goal is to “democratize” investing and to bring more regular people into it. But the company has run afoul of regulators who say the company downplays the risks of trading. Robinhood says it is making moves to better educate users of its platform about those risks.

The Associated Press contributed to this story.