Robinhood has defended its decision to block users from buying GameStock, AMC, BlackBerry and other stock today, a controversial move that the trading platform said it plans to ease from Friday. The limit, applied earlier on Thursday, meant that Robinhood users were unable to buy more of the highly-volatile shares – which included $AMC, $KOSS, $NOK, #GME, and others – but could still sell them from their portfolio.
It followed a rollercoaster ride for a handful of otherwise uninspiring stock over the past few days. Fueled by Reddit – and the r/WallStreetBets forum specifically – investors drove the price of GameStock and other shares up exponentially. In the process, they pushed a hedge fund with a short position in the retailer nearly into bankruptcy.
Similar moves were made around Bed Bath & Beyond, American Airlines, BlackBerry, Castor Maritime, and others, with the shortlist selected primarily because they were stock hedge funds short sellers had identified. On Wednesday, most of the popular trading platforms and apps, including TD-Ameritrade, Charles Schwab, E-Trade, and Fidelty, suffered some form of downtime or system instability, with traders unable to access their accounts or complete trades.
Today, though, the situation escalated. Citing “significant market volatility,” Robinhood decided to restrict transactions for some of the targeted stock. That list included $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. Individual traders found themselves unable to buy, only sell, though the bigger players in the finance industry saw no such limitations.
It was enough to catch the attention of lawmakers, with Alexandria Ocasio-Cortez among others calling for Robinhood to be investigated by the US government’s Financial Services Committee. Now, Robinhood has defended its decision.
“Amid this week’s extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities,” the company wrote in a blog post. “As a brokerage firm, we have 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. 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.”
For investors hoping to continue using their Robinhood accounts to trade those particular stocks, they’ll have to wait until the market opens on Friday. “Starting tomorrow, we plan to allow limited buys of these securities,” Robinhood confirmed. “We’ll continue to monitor the situation and may make adjustments as needed.”
As for accusations that Robinhood was working on behalf of the big hedge funds, or other conspiracy theories that have unsurprisingly popped up in the aftermath of the “meme trading” phenomenon, the company denies that. “To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood insists. “We’re beginning to open up trading for some of these securities in a responsible manner.”
The routing is a reference to Robinhood selling order flow – i.e. early access to the trades its users are making, albeit only a matter of milliseconds in advance to the trades being enacted – to companies like Citadel Securities. That relationship allows Citadel Securities to react to big shifts in trading, through automated means, such as the ones we’ve seen this past week.