GME stock surge is all over the media and news outlets all across the world. A simple discussion on a reddit forum turned into a revolutionary idea of retail investors vs the Establishment.
The roller coaster ride sent Gamestop shares ( NYSE: GME ) from 5 to 140 to 350 and ~ 500 USD creating massive hysteria among short sellers. Hedge fund managers assume the stock will go down in price by 29th of January 2021. Hedge fund managers first borrowed the stock, now they have to pay it back to their lenders, regardless the price. This caused an even bigger price increase as managers scrambled to cover the positions.
More information in regards to hedge funds or short selling can be found here:
What Is A Short Sell? – newsflash.press
The overall effect was that by mid day Thursday, the stock was trading on average 300 USD. A tweet by Elon Musk , sent the stock soaring even higher to a staggering 450 USD! This is where it gets dirty though.
During Thursday’s and Friday’s trading days, multiple HALTS happened. These events stop the trading activity for 1-5 mins. It’s common for brokerage firms to halt a trade for extremely volatile shares.
Restrictions in trading GME
Soon after the highs registered on Thursday mid day, some brokering apps – most notably RobinHood – prevented it’s retail investor base ( the little guy ) from further buying the stock. Obviously, if further buys were in place that would have sent the stock even higher, possibly near the 1000 $ . This was forcing short sellers to cover their positions at much higher prices. Other applications such as TD Ameritrade, WeBull or Revolut also followed suit, some restricting the amount of shares that could be bought, others preventing cash buying orders altogether.
In an interview, Robinhood CEO dangled in between “protecting it’s investors” and “having financial/regulatory requirements”. It’s ironic for it’s name – Robin hood – since it seems to be doing quite the opposite of what the legendary medieval hero was doing. During the interview Chris Coumo reveals Citadel hedge fund owns part of Robinhood . The aforementioned hedge fund had a big short position set to expire on Friday the 29th.
The full interview with Chris Coumo:
The only authority which can define whether a security should not be traded is the NYSE or the SEC. In very special circumstances (such as fraud or investigations of a company’s material listings) these organizations have the authority to stop certain trades. In any case it doesn’t explain why these apps like Robin hood allowed it’s users to sell but not buy. Due this reason other investors such as Elon Musk questioned Vlad Tenev in a recent interview on Clubhouse.
Disgruntled users uninstall Robinhood, leave 1 star ratings
Because of the whole ordeal, a staggering 100.000+ users uninstalled and shared negative, 1 star ratings and comments. Google initially removed the said comments. In a more recent development however the search giant will no longer interfere on the matter. Regardless, disgruntled users are still voicing their frustrations
A similar event went on in April 2020 with traders attempting to access commodities such as oil. The commodity traded at negative values because of the petrol crisis . A fully blown global pandemic further fueled the price decrease. During those times some users reported the app as “down” or unresponsive while the retail consumers attempted to purchase oil.
The decisions made by the firm drew the attention of opposing members of the political spectrum in the USA. In an almost unprecedented event, Republican Senator Ted Cruz backs up Democratic House Representative Rashida Tlaib and Alexandria Ocasio-Cortez (AOC). They describe Robinhood’s actions as “unacceptable”, “market manipulation” to protect hedge funds. The political figures requested Congress to investigate the company’s decision “to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit”.
A class action lawsuit was filed in the Southern District of New York against Robinhood on January 28th. The reasoning was on grounds of market manipulation. Throughout the lawsuit it is stated the app “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise […] deprived retail investors of the ability ot invest in the open-market and manipulating the open-market.”
Will GME stock continue to soar this week? Will short sales squeeze again on Friday? Only time will tell.