Trading app Robinhood on Thursday restricted buying or trading in GameStop stock along with several other formerly obscure stocks that are spiking following a scramble of social media driven trading activity this week.
The popular stock market app informed users that they could close out positions on the highly volatile stocks but could not purchase additional shares.
“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only,” including GameStop, AMC Entertainment, BlackBerry, Bed Bath & Beyond, Express, Koss, Naked Brand, and Nokia, Robinhood said in a statement.
Online broker Interactive Brokers also restricted trading for GameStop, AMC, BlackBerry, Express, and Koss to “liquidation only,” the company said in a statement Thursday.
Both companies said they have also raised margin requirements for certain securities.
GameStock shares quickly sank in response to the news of the restrictions. The company’s shares had skyrocketed this week to above $400 from less than $19 at the end of 2020.
Robinhood, which has about 13 million users, was a key tool in efforts by a group of Reddit users from the subreddit WallStreetBets who plotted to push the stock of GameStock and several other companies higher in an attempt to undermine traditional Wall Street hedge funds that had shorted the companies. Several hedge funds have already seen major losses in the wake of the chaos, including Citron Research and Melvin Capital, which was force to obtain a nearly $3 billion cash injection to cover its losses.
“We’re committed to helping our customers navigate this uncertainty,” Robinhood said in a blog post.
A day earlier, Charles Schwab and TD Ameritrade also restricted trading on GameStop and AMC.
Later on Thursday, Robinhood was hit with a federal class action lawsuit from its users over the suspension of trading in GameStop stock.
“Robinhood purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise thereby deprived retail investors of the ability to invest in the open-market and manipulating the open-market,” the suit, filed in the Southern District of New York, alleges.
Representative Alexandria Ocasio-Cortez called Robinhood’s move “unacceptable” in a tweet and demanded more information about the company’s “decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
The New York Democrat added that as a member of the House Financial Services Committee she would support a hearing “if necessary.”