Online brokerage app Robinhood reversed course and will let investors buy shares of GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), and 11 other volatile stocks that it previously prevented them from buying.
Robinhood CEO Vlad Tenev told CNBC the decision to allow investors only to close out their positions in these stocks and not to buy them was to protect the firm and investors. He maintained it was done to comply with SEC capital requirements and not at the behest of any market makers or hedge funds that took enormous short positions and then got caught in a massive "gamma squeeze."
Ready for the fight
GameStop became a rally flag against short-sellers after a group of Reddit investors coordinated a campaign of buying stock options to drive up the stock price and foment a short squeeze resulting in hedge funds losing at least $5 billion on the video game retailer.
Investors subsequently drove up other heavily shorted stocks like AMC and Bed Bath & Beyond, which led Wall Street to largely block the ability of retail investors to continue their attack on the short-sellers.
Besides Robinhood, other major brokerage firms including WeBull, Interactive Brokers, Charles Schwab, and TD Ameritrade all limited or prohibited investors from buying the most popular stocks.
There was significant backlash from the apparent coordinated response to protect Wall Street insiders, and not just from random people on Reddit, but also from politicians on both sides of the aisle who condemned the action.
Shortly afterward, WeBull began allowing limited trading again and Robinhood said it would follow suit. Because they had interfered with investors' ability to buy the shorted stocks, their share prices collapsed. GameStop fell 44%, AMC plunged 57%, and Bed Bath & Beyond tumbled 36%.
With limited trading resuming today, share prices may rise again, though not so dramatically.