Robinhood, brokerages spark outrage as it limits trading in certain stocks

Robinhood, along with other online brokerages, has restricted trading in the stocks of GameStop, AMC and a new other companies that became targets of the WallStreetBets trading offensive on Reddit.

The AP’s Alex Veiga reported:

Robinhood and other retail brokerages took steps to tamp down the speculative frenzy surrounding companies such as GameStop, but the actions only sparked more volatility in the market and an outcry from users of the platforms and some members of Congress who say small investors are being treated unfairly.

GameStop stock has rocketed from below $20 earlier this month to close around $350 Wednesday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.

Caitlin McCabe from the Wall Street Journal wrote:

At least three brokerages said the trading restrictions stemmed from mandates from their clearing firm, which process the securities on the back end after a user executes a trade with their brokerage. Webull Chief Executive Anthony Denier said his platform’s clearing firm, Apex Clearing Corp., notified him Thursday morning that Webull needed to shut off the ability to open new positions in certain stocks. Otherwise, Apex wouldn’t be able to settle the trades, he said.

CNBC’s Maggie Fitzgerald quoted Robinhood’s CEO:

“In order to protect the firm and protect our customers we had to limit buying in these stocks,” Tenev told CNBC’s Andrew Ross Sorkin Thursday evening.

“Robinhood is a brokerage firm, we have lots of financial requirements. We have SEC net capital requirements and clearing house deposits. So that’s money that we have to deposit at various clearing houses. Some of these requirements fluctuate quite a bit based on volatility in the market and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media,” said Tenev.