Shortly before 10AM EST this morning, retail trading app Robinhood announced they were freezing all further purchases of GameStop stocks through their software, along with AMC Entertainment, BlackBerry, and a number of other stocks which have recently received unexpected rallies through social media.
In a blog post, the company explained that they were making this move in response to “significant market volatility.” They have reportedly increased margin requirements for certain securities. “We’re committed to helping our customers navigate this uncertainty,” the company wrote. “We fundamentally believe that everyone should have access to financial markets. We’re humbled to have helped many people invest in the markets for the first time. And we’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures.”
It’s been reported that other daytrading apps from TD Ameritrade, Trading 212, and Charles Schwab have also blocked purchases of GameStop stock. Others, such as Capital.com, have blocked users from finding GME and AMC in searches.
Robinhood’s Twitter feed has been flooded with outraged traders and others, and lawsuits against the trading company have reportedly been filed. The matter has also attracted the attention of Congress and White House advisors.
As of the time of this writing, GameStop’s stock price currently sits at $235 USD, down over 32% from the previous high.
Food For Thought
Despite battle cries from posters on r/WallStreetBets, there was little likelihood of the stock ever hitting $1000 USD, as some were exhorting. However, this particular move not only prevents that from happening, but it does so in a way which is incredibly stupid from the perspective of the average retail investor. Robinhood’s pious claims to the rectitude of their actions flies in the face of their professed “fundamental beliefs.” If the SEC wants to pump the brakes, that’s one thing, and that is properly their job. It is not the job of the trading company. That said, while it’s unlikely that GameStop stock crashing will cause something akin to the subprime mortgage collapse, it’s highly likely that a “soft crash” will ultimately happen as part of regular market correction. And it’s also highly likely that there is going to be a reckoning on Wall Street among short sellers and various brokerages.