The ongoing frenzy over shares in GameStop Corp (NYSE:GME) looks set to break out once again on Friday after US trading app Robinhood and a number of other rival platforms lifted a ban on buying the stock which was imposed yesterday amid a surge in trading volumes.
In pre-market trading in New York on Friday morning, shares in the video game retailer were up 70.5% at US$330, a strong recovery from Thursday’s session which saw the stock reach a high of almost US$470 before plunging to a low of around US$130 and then recovering somewhat to close at US$193.60.
The sharp drop yesterday was seemingly triggered by a number of retail trading platforms such as Robinhood, which allow investors to buy and sell shares with zero commission, deciding to prevent users from purchasing shares in GameStop as the frenzy reached a fever pitch and pushed the share price ever higher despite the lack of any news from the company.
On Thursday afternoon, Robinhood said it was restricting trading in shares of GameStop and other companies including cinema chain AMC Entertainment Holdings Inc (NYSE:AMC), another stock that has surged in recent days, in response to the current market volatility, however, the decision drew swift backlash from the army of retail traders who accused the platform of market manipulation and trying to protect the financial institutions that had taken out short positions against GameStop’s shares.
This culminated in the filing of a class-action lawsuit against the app for restricting trading of the shares. The lawsuit, filed in the Southern District of New York, accuses Robinhood of “purposefully, willfully, and knowingly removing the stock [GameStop] 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 platform and the retail investor community was also hit with another obstacle overnight after Facebook Inc (NASDAQ:FB) shut down Robinhood Stock Traders, a 157,000-member Wall Street stock discussion group, as part of what appeared to be an attempt to get the frenzy under control.
However, Robinhood hasn't decided to lift the buying ban purely out of goodwill, with the platform having managed to secure around US$1bn of additional cash from its backers in order to handle the upswing in buying activity.
The seemingly random flare-up in the shares is also drawing the attention of US regulators, with the Securities and Exchange Commission (SEC) saying on Wednesday that it is “actively monitoring the on-going market volatility in the options and equities markets” and that it is also working with other regulators “to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants”.
However, the trading frenzy, which was sparked by an attempt by traders on the Reddit community r/wallstreetbets to ‘squeeze’ short positions taken out by hedge funds against GameStop, has seemingly spread to stocks in other firms that have recently been the subject of heavy short selling including AMC, Blackberry and Nokia as more retail traders look to bleed Wall Streets hedge funds of more cash.
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“With the retail community more fired up than ever and turning their anger and frustration towards those seeking to oppress them - or so the narrative goes - the next few weeks could be a wild ride. The community has already achieved one thing, they've dug up names I'd long forgot existed. I look forward, if nothing else, to all the nostalgia in the coming weeks as more forgotten firms turn into multi-billion dollar companies over night”, said OANDA’s Craig Erlam.
While the analyst said the current blip was “nothing major to worry about”, he said the issue of the frenzy weighing on the wider market “could be exacerbated if the narrative gathers momentum or losses mount, forcing more action”.