Washington is evaluating the investigation and the launch of congressional hearings on Wall Street, following a confusion in social media-driven trading activity this week that caused GameStop and several other previously obscure actions to fire.
Under specific scrutiny is the trading app Robinhood, which on Thursday restricted the purchase or trading of GameStop shares and other shares that were up. The popular stock trading app informed users that they could close positions in highly volatile stocks, but could not buy additional shares.
Robinhood, who has about 13 million users, was a key tool in the efforts of a group of Reddit users of the subreddit WallStreetBets who planned to increase the shares of GameStock and several other companies in an attempt to undermine traditional hedge funds from Wall Street that had shortened businesses. Several hedge funds have seen huge losses in the wake of chaos, including Citron Research and Melvin Capital, which was forced to obtain a cash injection of nearly $ 3 billion to cover its losses.
The House Financial Services Committee chairman, Maxine Waters, and the new Senate Banking Committee chairman, Sherrod Brown, both Democrats, said their committees will hold hearings to examine the situation.
The Securities and Exchange Commission said Friday that it is reviewing moves made by brokerages that may “harm investors or unduly inhibit their ability to trade certain securities”
“We will act to protect retail investors when the facts demonstrate abusive or manipulative commercial activity prohibited by federal securities laws,” said the SEC.
Online brokerage Interactive Brokers also restricted the trading of GameStop, AMC, BlackBerry, Express and Koss to “settlement only,” the company said in a statement on Thursday.
GameStock’s stock plummeted quickly in response to news of the restrictions. The company’s stock soared this week to more than $ 400, from less than $ 19 in late 2020.
“I am deeply concerned that these casino swings in the value of GameStop and other company stocks are yet another example of the skill of the game that interferes with the ‘fair, orderly and efficient’ function of the market, raising obvious questions about the public confidence in the market and those who trade in it, ”Democratic Senator Elizabeth Warren (Massachusetts), a longtime critic of Wall Street, wrote in a letter on Friday to the Securities and Exchange Commission.
“There are rich people on both sides of it, people who are trying, it seems, to manipulate this market,” she told CNBC. “And that’s what we don’t know the details about.”
The day before, Charles Schwab and TD Ameritrade also restricted trade on GameStop and AMC.
Later on Thursday, Robinhood was hit by a federal class action by his users over the suspension of trading GameStop shares.