GameStop furor unites AOC, Trump Jr. and Ted Cruz


The spectacular rise of GameStop’s stock from a surge of buying by small investors has rattled both markets and Washington, with some lawmakers demanding that regulators step in and others threatening action against brokers that suddenly kneecapped retail traders on Thursday.

Stocks in the video game retailer and other struggling companies, which have been zealously promoted by groups of small investors on the social media site Reddit, saw huge rallies that blindsided some of the most powerful players on Wall Street. That includes hedge funds that were betting the companies’ shares would fall because of their financial problems, a wrong guess that has cost them billions.

The frenzy has increasingly drawn in policymakers throughout the week. It culminated in a rare agreement among Rep. Alexandria Ocasio-Cortez (D-N.Y), Sen. Ted Cruz (R-Texas) and Donald Trump Jr., who slammed the brokerage Robinhood Financial, a firm catering to younger investors, for suddenly limiting trading in GameStop, AMC Entertainment and other stocks.

Their unity came after attention this week from a growing group of prominent lawmakers, including Sen. Elizabeth Warren (D-Mass.). The GameStop mania even came up repeatedly Wednesday in a press conference by Federal Reserve Chair Jerome Powell, who declined to comment on it.

"We need more regulation and equality in the markets," Rep. Ro Khanna (D-Calif.) said in a statement blasted to the press Thursday morning that criticized what he said was the favorable treatment being given to hedge funds. That followed a tweet by Warren on Wednesday saying it’s "long past time for the SEC and other financial regulators to wake up and do their jobs."

No one spelled out what exactly they wanted the authorities to do, since it wasn’t clear that anything illegal took place. But some parties took action.

Broker-dealers that offer popular trading apps for retail investors to buy stocks on Thursday temporarily cut off access to shares that have seen frenzied rallies in recent days, including GameStop and movie theater operator AMC, both of which have been especially hammered by the pandemic.

Both Robinhood Financial and Interactive Brokers said they were limiting access to certain stocks and were taking other steps to curb trading in response to the rallies, which have been driven by users on a stock market-related subcommunity of users on Reddit called "r/WallStreetBets."

Ocasio-Cortez and Trump Jr., in an unusual meeting of the minds, were among those cheering on the Reddit phenomenon.

“Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino,” Ocasio-Cortez wrote in a tweet.

Added Trump Jr.: “It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks!"

"This entire episode has demonstrated the power of technology to democratize access to American financial institutions, ultimately giving far more people a say in our economic structures," Khanna said. "This also showed how the cards are stacked against the little guy in favor of billionaire Wall Street Traders."

The White House and the Securities and Exchange Commission had a more measured response, merely saying they were monitoring the situation.

After years of slumping share prices that dipped below $3 at one point in 2020, purchases by Reddit users caused GameStop’s stock to skyrocket in January. By Thursday morning, the shares crested at nearly $470 a share. By midday, the stock had whipsawed wildly, dropping to below $130 in a matter of hours after the broker-dealers announced their restrictions on customer access, before rebounding slightly.

Broker-dealers providing the trading apps have the ability to restrict retail investor access to certain stocks and other investment choices such as options or futures. That’s because they are required to follow federal regulations designed to protect retail investors, such as a requirement that brokers must not to offer customers investments they don’t understand.

Brokers can also restrict stock activity based on volatility.

The exchanges and the SEC have the power to halt trading in stocks if they suspect illegal activity including market manipulation is taking place. But so far, they have not done so for these stocks.

Robinhood told users in a blog post Thursday that "in light of recent volatility, we are restricting transactions for certain securities to position closing only," for numerous stocks, including GameStop, AMC, BlackBerry Ltd., Nokia Oyj, Express, as well as home goods retailer Bed, Bath & Beyond. Additionally, Robinhood will also be raising margin requirements for "certain securities," the popular broker-dealer added, without elaborating on which ones.

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