A man walks past an AMC theater involved in the coronavirus disease (COVID-19) pandemic in the Manhattan neighborhood of New York City, New York, the United States, on Jan. 27, 2021.
Carlo Allegri | Reuters
Stocks on Robinhood's restricted trading list rose Friday after the online broker announced it would resume restricted trading on the severely shortened names.
GameStop rose 113% from its session high just after the opening bell. The stock was subsequently suspended from trading due to the volatility. When trading resumed, GameStop reduced some of its previous profits and last traded 56% higher.
Koss rose 89%. AMC Entertainment and Express increased 50% and 25%, respectively. Each share was stopped earlier due to the volatility. The Naked Brand Group grew by 21%.
For some stocks, Friday's spike erased the previous session's heavy losses after Robinhood and other retail brokers announced restrictions on a handful of stocks, including in some cases that customers could only buy and sell new stocks. GameStop, for example, was down 44% on Thursday.
Robinhood's restricted list
In a statement late Thursday announcing it would resume blacklisting stocks, Robinhood said, "We will continue to monitor the situation and make adjustments if necessary." The startup added that its previous decision to restrict trading – which annoyed many users – was necessary to meet the SEC's capital requirements for broker-dealers.
Brokers like Robinhood often spend money to investors to do business. If a large number of investors are hit by large losses and cannot cover the funds borrowed, brokers could suffer enormous losses.
Interactive Brokers took steps similar to Robinhood, with both also increasing the margin requirements on certain securities. It is not uncommon to increase margin requirements, but the move to restrict trading was more extreme, which annoyed and confused some users.
The decision followed retail investors who flocked to some of the most shortened names in the market, forcing hedge funds and those on the other side to rush to cover their losses. This, in turn, drives stock prices even higher. Investors turned to popular forums like Reddit's WallStreetBets board to discuss their trades.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in the expectation that the market value will drop below that level when it is time to pay for the borrowed shares.
Two of the top three highest volume days, dating back to at least 2007, came this week as the trading frenzy continued, causing a number of lawmakers to weigh up whether regulators should take action.
Investing in retail investors has increased in the pandemic, and on Friday Robinhood raised over $ 1 billion and drawn lines of credit to ensure the capital was available to trade in volatile names.
"By drawing on our lines of credit, which we constantly use as part of normal day-to-day business, we get more capital that we can deposit with the clearing houses and that ideally enables us to make more investments with fewer restrictions," said Vlad Tenev , Robinhood CEO, told CNBC's Andrew Ross Sorkin on Thursday evening.