GameStop Stock Crashed on Trading Ban, Questions Over SEC Role

GameStop (NYSE: GME) stock started the day with more than 30% gain but shares fell 55% in a couple of hours amid bans on GameStop trading from well-known brokers.

Has GameStop stock crashed? Shares of GameStop fell to $190 level after rallying 134% yesterday to almost $480 level. The gamma-squeeze stock took a center stage between a tug of war between Reddit’s day trader’s army WallStreetBets and short investment firms like Melvin Capital that has lost 30% of their hedge fund value in the first few weeks of 2020.

$GME GameStop stock

Bans Are Working

Robinhood announced to lock traders from GameStop (NYSE: GME), Nokia (NYSE: NOK), AMC Entertainment (NYSE: AMC), and Naked Brands.

“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to the position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities,”

Robinhood said.

Traders rejected Robinhood’s decision.

“I will burn @RobinhoodApp to the ground if they shut down free market trading,”

one trader said and the tweet is loved by 84.5K people.

Moreover, Interactive Broker has put several short squeezed stocks

“into liquidation only due to extraordinary volatility in the markets.”

Regulators Are Closely Watching GameStop Volatility

The White House Press Secretary Jen Psaki also pointed out video game retailer’s stock activity, saying Treasury Secretary Janet Yellen is watching the stock market activity around heavily shorted companies.

Democratic Senator Elizabeth Warren also highlighted concerns over GameStop activity and raised questions over SEC’s role.

“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” Warren said. “It’s long past time for the SEC and other financial regulators to wake up and do their jobs — and with a new administration and Democrats running Congress, I intend to make sure they do,”

Elizabeth Warren said.

The entire saga puts Robinhood in a compromising position. The companies IPO was expected in the Q1/Q2 of 2021. During a fundraising round in September 2020, the FinTech was estimated at about $11.7 billion.

Since the additional publicity brought upon Robinhood due to the GameStop saga and it’s locking out of retail trader to various stocks.

The company has more than 13 million user accounts, according to reports. The IPO would come on the heels from an SEC settlement over charges that it misled its customers about revenue sources and failing to satisfy duty of best execution.

Nancy Pelosi, Speaker of the House, says trade bans by Robinhood on GameStop stocks warrant an inquiry.

Siraj Sarwar - Lead Analyst
@tradethedayfx
Siraj Sarwar has been performing analysis on the stock market, equity research and general business consultation. He regularly contributes articles on economics, commodities, and equities to the world's leading websites, including Trade the Day, SeekingAlpha, TheStreet, and MSN.
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