GameStop and AMC Entertainment shares sank on Thursday as online brokerages Robinhood Markets Inc and Interactive Brokers restricted trading in several social-media driven stocks that had soared this week.
The trading frenzy shook stock markets in the United States and elsewhere as heavily-shorted stocks rallied, then sold off. The tug-of-war has pitted hedge funds and other short sellers against retail buyers, many motivated by commentary on sites such as Reddit.
AMC stock dropped 60 percent. GameStop lost 23 percent. Wall Street's main indexes rose.
GameStop, the video game retailer whose 1700 percent rally has been at the heart of the slugfest in the past week, initially rallied to more than $480 a share, Refinitiv data showed. It was last at $265.
"The Robinhood ban on those stocks have put a pretty good end to (the rally)," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.
"Everybody's trying to hit the exit button at the same time. When you start spooking all the short-sellers, there's nobody that keeps prices in check anymore."
Robinhood also restricted trading in BlackBerry, Koss and Express, citing "recent volatility." It faced a barrage of criticism from retail investors, celebrities and policymakers. Interactive Brokers, another online trading platform, also restricted trading in those stocks. "We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only," it said.
On Twitter, many observers argued trading platforms were trying to protect Wall Street interests at the expense of retail investors.
"Robin Hood: a parable about stealing from the rich to give to the poor. Robinhood: an app about protecting the rich from being short squeezed by the poor," tweeted Jake Chervinsky, a lawyer for fintech company Compound.
Robinhood has seen business boom during the coronavirus pandemic as more home-bound consumers took to trading stocks online. The app now counts more than 13 million users.
Social media chat rooms are beginning to resemble the squawk boxes on trading floors as a new generation of retail traders gains influence.
American Airlines Jumps
American Airlines joined the list of stocks making gains as small-time traders broadened their battle with major Wall Street institutions, but it, too, was well off earlier highs as Robinhood restricted trading.
Shares in American Airlines jumped 8 percent. It reported earnings but investors said those were not enough to explain its stock move.
"It's irrational day-trading, nothing fundamental. Same as GameStop, Tootsie Roll, Virgin Galactic, etc," said Darryl Genovesi, Vertical Research analyst.
As the "Reddit crowd" has roiled the market, a basket of stocks traded mostly by hedge funds has fallen 2.5 percent so far this year while a basket tracking retail favorites jumped 13.5 percent, data from Goldman Sachs showed.
Before it's retreat, GameStop briefly became the biggest stock on the Russell 2000 index of small caps, according to Zerohedge.
Dramatic jumps in GameStop, BlackBerry Ltd and AMC drew some to call for regulatory scrutiny.
"In terms of short interest being monitored, the U.S. markets are probably the most transparent, but there's always room for improvement," former SEC chairman Jay Clayton told CNBC.
Silver industry shares also caught traders' attention. Canada's First Majestic Silver was halted briefly in New York after shares rose more than 30 percent.
Heavily-shorted stocks were also active in Australia and Europe.