- Shares of GameStop, AMC and other heavily shorted stocks spiked on Friday.
- GameStop gained 68% on Friday.
- Robinhood said Thursday night that it would restore trading in previously restricted securities, prompting the rally. However, by Friday afternoon the start-up was still severely limiting user trading.
Shares of GameStop, AMC and other heavily shorted stocks spiked on Friday after Robinhood said Thursday evening that it would resume limited trading of previously restricted securities. However, over the course of Friday's session the stocks gave back a significant chunk of their gains after Robinhood imposed heavy trading limits on the stocks.
GameStop shares closed 68% higher on Friday, bringing their gain for the week to 400%. During a volatile session the stock had previously been up 113% to hit a session high of $413.98. Shares also traded as low as $250.
It was unclear when on Friday Robinhood implemented the stricter rules, but a post on its help center said users could only increase their position in GameStop by one share. Earlier in the day, users had been able to purchase five shares.
On Thursday the stock closed down 44% to $193.60. GameStop's high for this week was $483. In a statement late Thursday allowing limited buys of these stocks, Robinhood said: "We'll continue to monitor the situation and may make adjustments as needed."
Following the spike in shares this week, CNBC's Jim Cramer said investors should take profits.
"Take the home run. Don't go for the grand slam. Take the home run. You've already won. You've won the game. You're done," Cramer said Friday on "Squawk on the Street."
Robinhood said its decision on Thursday to restrict trading — which angered many users — was necessary in order to comply with capital requirements mandated by the SEC for broker dealers.
"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," the company said.
Amid the trading frenzy the online brokerage company, which is widely expected to go public this year, has tapped some of its credit lines, according to a person familiar with the matter.
As retail investors piled into the market, Robinhood and other retail brokerages restricted trading in several stocks that had bee targeted by short sellers. In such trades, investors borrow shares of a company in expectation that the stock price will go down, netting a profit when the short seller must cover the shares upon expiration of the trade.
The free-stock trading app said that in some cases, investors would be able to only sell their positions and not open new ones.
In addition to GameStop, the restricted trading sent shares of AMC Entertainment tumbling 56% on Thursday. AMC rebounded 53% on Friday.
Interactive Brokers took similar steps as Robinhood, including raising margin requirements on certain securities. It is not unusual to raise margin requirements, but the move to restrict trading was more extreme, which angered and confused some users.
Raising margin requirements increases how much money an investor using leverage and derivatives must have in their brokerage account after a stock purchase. TD Ameritrade and Charles Schwab raised margin requirements on Wednesday.
The influence of retail investors — most apparent in GameStop — has captivated the Street in recent days, and speaks to a new class of traders who grew up amid the pandemic.
Individual investors are creating short squeezes by piling into names that hedge funds are betting against, forcing the funds to rush to cover their losses. This typically pushes shares even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has more than 3 million members. Some view it as small investors pushing back against the Wall Street establishment.
Amid the meteoric pops — and then drops — some lawmakers are calling for an investigation. The Democratic leaders of the House Financial Services Committee and the Senate Banking Committee said they would hold hearings.
Rep. Alexandria Ocasio-Cortez, D-N.Y., among the most liberal in Congress, was among the lawmakers to comment on the trading activity, saying in a tweet that Robinhood's decision to limit trading was "unacceptable." Archconservative Sen. Ted Cruz, R-Texas, reposted Ocasio-Cortez's tweet to his own page, writing, "Fully agree."
Robinhood, whose mission is to democratize investing for all, has seen its user numbers surge amid the pandemic, and the app now boasts more than 13 million users. Its expansion has come with some growing pains, including several outages on key market days. It's also increasingly attracted the attention of lawmakers.
Sen. Elizabeth Warren, D-Mass., said chaotic trading in the market was due to a lack of oversight from the SEC.
"We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules," she told CNBC. "To have a healthy stock market, you've got to have a cop on the beat." The SEC did not respond to CNBC's request for comment.
Here's the full statement from Robinhood:
"This past year, we've seen the financial markets become a voice for the voiceless. We've seen a new generation of people come into the markets, sparking conversations about what it means to be an investor. Our customers have shown the world that investing is for everyone—not just institutional investors and hedge funds.
Amid this week's extraordinary circumstances in the market, we made a tough decision today to temporarily limit buying for certain securities. 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.
Starting tomorrow, we plan to allow limited buys of these securities. We'll continue to monitor the situation and may make adjustments as needed.
To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to. We're beginning to open up trading for some of these securities in a responsible manner.
We stand in support of our customers and the freedom of retail investors to shape their own financial future. Democratizing finance has been our guiding star since our earliest days. We will continue to build products that give more people—not fewer—access to our financial system. We'll keep monitoring market conditions as we look to restore full trading for these securities. We will update this Help Center article with the latest changes.
We are deeply grateful to our customers."
- CNBC's Maggie Fitzgerald, Leslie Picker, Tucker Higgins and Thomas Franck contributed reporting.