GameStop Shares Whipsaw Amid Trading Platform Restrictions
GameStop #GameStop
(Bloomberg) — GameStop Corp.’s volatile trading continued Thursday, briefly pushing the stock to the No. 1 spot on the Russell 2000 Index despite trading restrictions on platforms such as Robinhood Markets and Interactive Brokers Group Inc.
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The shares swung wildly between double-digit losses and gains in the opening 90 minutes of New York trading after Robinhood, Interactive Brokers and others took steps to curtail trading in several high-flying stocks, including GameStop and AMC Entertainment Holdings Inc. The stock was down 24% when trading was halted for a seventh time.
Read more: Robinhood, Interactive Brokers Clamp Down on High-Flying Stocks
For a brief moment, GameStop became the biggest stock on the Russell 2000, taking over from Plug Power Inc. The video-game retailer has advanced more than 2,000% this year, fueling a rally in retail trading across the board and leading some short sellers to throw in the towel.
The clampdown by brokerages extended beyond GameStop to other high flying stocks such as Blackberry Ltd. that have posted blistering rallies this week, burning short sellers and hedge funds. The phenomenon attracted the attention of regulators Wednesday, with the Securities and Exchange Commission saying it was actively monitoring the situation.
“I’m actually surprised that trading platforms are getting involved,” said Wedbush Securities Inc. analyst Michael Pachter. “Unless there is something screwy about the trading that suggests manipulation, they really should get out of the way and allow investors to trade whatever they wish.”
Trading has remained volatile since the last regular U.S. session, in which the stock rose 135%. Gains were briefly pared postmarket after the Reddit page that has fueled this month’s surge was made private and then later reopened by the group’s moderators. In the time the original WallStreetBets board was down, an alternate forum called Wallstreetbetsnew topped 350,000 members.
“This will burn itself out, like any other mania, but there will likely to be some impact on the market as a whole,” said Marshall Front, chief investment officer at Front Barnett Associates. “That these eye-popping moves happen after a nearly 70% move in the S&P since March shows there’s plenty of room for a pullback.”
Shorts Exit
Gamestop’s rise has prompted analysts at Citigroup Inc. to warn investors that some exchange-traded funds face an outsized influence from the video-game retailer as its boom has altered their composition. Analyst Scott Chronert advised clients to take “special note” of ETFs that incorporate leverage in their funds. A larger allocation to the stock may materially change fund performance for now until rebalance dates occur, he said in a report.
The Reddit community has dominated equities trading all week as retail traders target heavily shorted shares, causing ripples across the market. Investors including Melvin Capital closed out its short position on GameStop, while Muddy Waters’s Carson Block said he “massively reduced” its short positions in recent days to avoid getting burned.
(Updates share price moves throughout, adds more details.)
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