Robinhood restricts trading of companies targeted by Reddit users
Amatuer online traders fueled by online discussions on Reddit sent shares of Gamestop skyrocketing on Wednesday, setting off a series of critical reactions from Washington and a legal challenge for a popular stock trading app.
GameStop, a video game retailer struggling to keep up with direct downloads even before the coronavirus pandemic, saw its share price jump to $347 per share on Wednesday. Overall, its share price has risen more than 1,800 percent in January.
By Thursday, the stock trading app Robinhood blocked users from buying or trading stocks popular on the Reddit subforum, including Gamestop, AMC and BlackBerry.
Under the new limits, users will be allowed to close out existing trades, but won’t be able to acquire new shares.
“We continuously monitor the markets and make changes where necessary,” the day-trading app wrote in a blog post. “In light of recent volatility, we are restricting transactions for certain securities to position closing only.”
Robinhood was hit with a class-action lawsuit almost immediately after restricting the trading of the stocks popular on the Reddit forum.
The suit, filed in the Southern District of New York, claims that the day-trading app “purposefully, willfully, and knowingly removing the stock ‘GME’ [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.”
Robinhood’s decision also prompted swift backlash from Washington — drawing together a unified stance from an unlikely group of bipartisan lawmakers including Sen. Ted Cruz (R-Texas) and Rep. Alexandria Ocasio-Cortez (D-N.Y.).
Incoming chairman of the Senate Banking Committee Sen. Sherrod Brown (D-Ohio) said a hearing would be held on the state of the stock market amid the concern on how trading platforms have responded to viral rallies in certain stocks.