Online trading platforms Robinhood.com and Interactive Brokers said on Thursday they had restricted trading in shares of GameStop, BlackBerry and other companies that have seen hefty gains this week due to a social media-driven trading frenzy.
Individual investors who trade through online brokerage apps like Robinhood and discuss stocks on anonymous social media messaging boards have driven a dramatic jump in the stock price of companies including GameStop, BlackBerry and AMC Corp.
The outsized gains have forced some hedge funds that had been betting against the stocks to fold their positions and drawn calls for regulatory scrutiny from commentators.
The battle between small-time traders and hedge funds has shaken U.S. and European stock markets and moved into Asia on Thursday, with surges in several Australian companies joining a list of social-media hyped moves that have cost financial institutions billions of dollars.
Heavily shorted Australian shares, including Webjet and Tassal Group, climbed more than five per cent even as Sydney’s benchmark ASX 200 index fell two per cent.
Reddit discussion threads were again humming with chatter about the stocks on Thursday as membership of the trader-focused group WallStreetBets raced past four million.
In one discussion, thousands of participants responded “We love this stock” to a post that called for more buying of GameStop and cast retail traders as Iron Man against a hedge fund Thanos in a nod to the superhero movie Avengers: Endgame.
The war began last week when famed short-seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way.
He said on Wednesday he had abandoned the bet.
Regarded by market professionals as “dumb money,” the pack of traders — some of them former bankers working for themselves — have become an increasingly powerful force worth 20 per cent of equity orders last year, data from Swiss bank UBS showed.
The only-way-is-up nature of stock markets over the past decade, fueled by a constant flow of newly created money from major central banks, has also made it less risky to bet on shares rising.
The U.S. Federal Reserve kept those taps firmly open at its latest meeting on Wednesday.
This week’s turmoil caught the attention of the White House, with President Joe Biden’s economic team — including Treasury Secretary Janet Yellen on her first full day on the job on Wednesday — “monitoring the situation.”
Massachusetts state regulator William Galvin called on NYSE to suspend trading in GameStop for 30 days to allow a cooling-off period.
“The prospect of intervention here is clearly high, but this will just galvanize the (WallStreetBets) community as it just brings home the feeling of inequality in financial markets,” said Chris Weston, head of research at broker Pepperstone in Melbourne.
“It’s fine to prop up zombie companies through Fed actions but if retail follows a path that greatly distorts asset prices by targeting short sellers, then this gets shut down.”
Reddit said on Wednesday that it had not been contacted by authorities over the surges.
— With files from Global News money reporter Erica Alini