A man walks past an AMC theater amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, USA, January 27, 2021.
Carlo Allegri | Reuters
Shares on Robinhood’s restricted trading list surged during premarket trading on Friday, after the online brokerage said Thursday night that it would resume limited trading in these names.
GameStop was up 96%, while Koss Corporation was up 93%. AMC Entertainment and Express were up 53% and 44%, respectively. Naked Brand Group won 37%.
For some stocks, Friday’s premarket spike cleared the heavy losses suffered during the previous session after Robinhood and other brokers announced restrictions on a handful of stocks, including in some cases not allowing clients to buy new stocks and only sell. GameStop, for example, slid 44% on Thursday.
Robinhood’s Limited List
In a statement late Thursday announcing it would resume trading in the blacklisted stock, Robinhood said, “We will continue to monitor the situation and may make adjustments if necessary.” The start-up added that its earlier decision to restrict trading – which angered many users – was necessary to meet the capital requirements imposed on broker dealers by the SEC.
Interactive Brokers took similar steps to Robinhood, with both also increasing margin requirements on certain securities. It’s not uncommon to increase margin requirements, but the move to restrict trading was more extreme, anger and confusion for some users.
The decision followed private investors flocking to some of the most short-circuited names on the market, forcing hedge funds and those on the other end to rush to cover their losses. This, in turn, drives stock prices even higher. Investors turned to popular forums like Reddit’s WallStreetBets board to discuss their trades.
Short selling is a strategy where investors borrow shares of a stock at a specified price in the expectation that its market value will fall below that level when it comes time to pay for the borrowed shares.
Two of the top three days with the highest volume dating back to at least 2007 occurred this week as the trade frenzy continued, prompting some lawmakers to consider whether regulatory agencies needed to take action.
Retail investments surged during the pandemic, and on Friday, Robinhood raised more than $ 1 billion and used lines of credit to ensure it had the necessary capital to offer trade in the volatile names.
“By using our lines of credit, which we do all the time as part of normal day-to-day operations, we will get more capital that we can deposit with the clearing houses and that will ideally allow us to invest more with fewer restrictions”, Robinhood CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin in an interview Thursday night.
AMC is also reportedly looking for additional capital amid the more than 300% jumps in its stock this year, according to sources Reuters cites. Monday, AMC said it had raised $ 917 million in new equity and debt since December 14.