A man walks past an AMC theatre amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., January 27, 2021.
Carlo Allegri | Reuters
Stocks on Robinhood’s restricted trading list jumped during premarket trading on Friday, after the online brokerage said Thursday evening that it would resume limited trading in these names.
For some of the stocks, Friday’s premarket spike erased heavy losses sustained during the prior session after Robinhood and other brokerages announced restrictions on a handful of stocks, including in some cases not allowing customers to buy new shares and only sell. GameStop, for example, slid 44% on Thursday.
Robinhood’s restricted list
In a statement late Thursday announcing that it would resume trading in the blacklisted stocks, Robinhood said: “We’ll continue to monitor the situation and may make adjustments as needed.” The start-up added that its earlier decision to restrict trading — which angered many users — was necessary in order to comply with capital requirements mandated by the SEC for broker dealers.
Interactive Brokers took similar steps as Robinhood, with both also raising margin requirements on certain securities. It is not unusual to raise margin requirements, but the move to restrict trading was more extreme, which angered and confused some users.
The decision followed retail investors flocking en masse to some of the market’s most heavily-shorted names, forcing hedge funds and those on the other side to rush to cover their losses. This, in turn, drives share prices even higher. Investors turned to popular forums like Reddit’s WallStreetBets board to discuss their trades.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in expectations that the market value will fall below that level when it’s time to pay for the borrowed shares.
Two of the top three highest volume days going back to at least 2007 occurred this week as the trading frenzy wore on, prompting a number of lawmakers to weigh in on whether regulatory bodies should take action.
Retail investing has spiked amid the pandemic, and on Friday Robinhood raised over $1 billion and tapped credit lines to ensure that it had the capital required to offer trading in the volatile names.
“By drawing on our credit lines which we do all the time as part of normal day to day operations we get more capital that we can deposit with the clearing houses and that will allow us to enable ideally more investing with fewer restrictions,” Robinhood CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin in an interview Thursday evening.