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Robinhood to allow 'limited buys' of GameStop, other stocks Friday after market volatility

GameStop-Stock Surge
Posted at 8:20 AM, Jan 28, 2021
and last updated 2021-01-28 19:54:50-05

Financial trading platform Robinhood will allow trading again on GameStop, BlackBerry, Bed Bath & Beyond and other companies it announced Thursday evening. This comes hours after the trading platform restricted transactions for certain stocks because of market volatility.

In a tweet, Robinhood co-founder Vlad Tenev said they "plan to allow limited buys of these securities. We'll continue to monitor the situation and make adjustments as needed."

A class-action lawsuit from angry customers was filed after the app decided to suspend trading on several stocks — including GameStop — that have seen unusual trading patterns in recent days. Fox News reports that the lawsuit was filed in the Southern District of New York.

According to the Daily Beast, the lawsuit alleges that Robinhood “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”

Robinhood announced Thursday morning in a blog post that it was "restricting transactions for certain securities to position closing only" for shares of GameStop, BlackBerry, Bed Bath & Beyond, retail store Express, electronics manufacturer Koss, retailer Naked Brands and Nokia due to "recent volatility."

By restricting transactions to "position closing only," Robinhood prevented users from making new purchases of those stocks. Those that already own pieces of those stocks can only sell the portions they already own.

The move comes as retail investors — amateur or part-time traders using low-cost platforms like Robinhood to buy and sell securities — have banded together on social media to throw certain stocks out of whack.

In a blog post Thursday afternoon, and follow-up tweets from Tenev, Robinhood explained the move to limit trading was because of the market volatility.

"As a brokerage firm, Robinhood has many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment," Tenev tweeted.

"These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today."

The movement began when Wall Street hedge funds attempted to "short" — or bet against — GameStop, a quickly fading video game retailer. Investors on a Reddit forum vowed to buy and hold stock in the retailer in an attempt to ruin the bet and potentially make thousands of dollars.

As a result, GameStop's stock soared from about $18 a share to nearly $400 a share in a matter of weeks. According to Reuters, the Wall Street professionals that attempted to short GameStop's stock have lost an estimated $7 billion in a matter of days.

GameStop's meteoric rise has inspired other traders to attempt to replicate its success with other declining businesses against which Wall Street professionals were betting. Suddenly, companies teetering on the brink of bankruptcy like AMC saw stock prices soaring to heights not seen in decades.

However, the uncertain volatility in trading has spooked financial analysts, leading Robinhood, TD Ameritrade and other platforms frequented by retail investors to pause trading on stocks that had seen unusual trading patterns in recent days.

The platforms' decision to limit trading on those stocks has left some with large sums of cash tied up in GameStock and similar stocks. Angry customers quickly left thousands of one-star reviews for Robinhood in various app stores, cratering its rating.

In recent years, Robinhood has been praised by users for giving middle and lower-class Americans an opportunity to cash in on Wall Street. On its website, the app pledges to "democratize finance for all."

However, the app has also faced criticism for not properly explaining the risks associated with investing to its users. Last summer, a 20-year-old man from Illinois died by suicide after his Robinhood account reached an apparent negative balance of $730,000.

Following that incident, Robinhood promised to make changes to the app to better explain account balances and the mechanics of trading.