GameStop rises on Wall St open as FCA issues trading warning
GameStop stock was up more than 100 per cent as US markets opened today, as popular trading platform Robinhood eased restrictions on buying into the stock.
The army of small investors behind this week’s dramatic squeeze on Wall Street hedge funds returned to drive shares in GameStop and other hot companies higher on Friday as online broker Robinhood eased disputed trading restrictions.
After another volatile day on Wall Street, the US videogame stock ended the day up 68 per cent.
Robinhood said on its website that it was easing the restrictions today, but was not allowing purchases of fractional shares in GameStop and 12 other companies, effectively meaning smaller investors have to bet more in order to buy in further to the trade.
But as Robinhood eased restrictions, UK-based trader Freetrade implemented them.
Today the platform tweeted users would not be able to buy US stock because of an “unexpected” decision made by its FX provider and their bank.
“We’re deeply unhappy with this decision and we are doing everything possible to rectify the situation,” Freetrade added.
GameStop shares fell yesterday after trading platforms imposed restrictions that left investors unable to buy GameStop stock. Other stock also favoured by Redditors including Blackberry and cinema chain AMC also faced restrictions.
The buying of GameStop stock has gone global, with individuals all over the world joining the army of Redditors pushing up the value of the stock.
Today the Financial Conduct Authority issued a warning to traders. It said: “The FCA is aware of the situation and continues to closely monitor trading in UK markets. UK investors should take care when trading shares in highly volatile market conditions that they fully understand the risks they are taking. This applies to UK investors trading both US and UK stocks.
“Firms and individuals should also ensure they are familiar with, and abiding by, all regulations including the market abuse and short selling regimes in the jurisdiction they are trading in.”
Senator Elizabeth Warren waded into the mess on Friday evening. In a letter to the Securities and Exchange Commission (SEC), she asked the agency how it planned to address market manipulation.
“I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the ‘fair, orderly, and efficient’ function of the market,” Warren wrote.
She added the movement was “raising obvious questions about public confidence in the market and those trading in it,” and that the SEC must “act to ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders.“
What happened?
The price of shares in GameStop exploded after a group of Redditors made it their mission to drive up the price of the stock in response to hedge funds taking a short position on the US videogame retailer.
The battle has been ongoing for days, and so far, the amateur Reddit traders have outwitted the corporates, having driven the price of the stock to dizzying heights and instigated a short squeeze that forced the hedge funds to take heavy losses as they unloaded short positions.
The restrictions on trading yesterday prompted outrage from all political persuasions.
Donald Trump Jr tweeted: “It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks!”
Similarly, Democrat politician Alexandria Ocasio-Cortez tweeted that Robinhood restricting trading was “unacceptable”.
The chief executive of the London Stock Exchange, David Schwimmer, said regulators needed to be mindful of when the line was crossed into market manipulation.
“We’ve seen disruption by new technology and social media in a number of other industries so in some ways it’s not surprising to see it in financial markets,” he said.
“I will let the regulators determine whether there’s a need to take a careful look at this if it moves into the realm of market manipulation ,” Schwimmer added.
Robinhood has been one of the hottest venues in the retail-trading frenzy but its sudden curbs on buying set off a raft of online protests as the firm tapped credit lines to ensure it could continue trading.
The brokerage also said it had raised more than $1bn from its existing investors, having been strained by the high volumes and volatility of trading this week.