GameStop frenzy peaks as brokers restrict trading in stocks driven by online forums

Shares of GameStop and several other heavily shorted companies swung wildly on Thursday after a number of brokerages, including Robinhood, restricted customers from buying them.

The rally was fuelled by retail traders, many of them organised on a Reddit forum, who bought shares and call options in companies where hedge funds had large short positions. As prices rose, short sellers were forced to buy back shares to limit their losses, pushing prices higher still. Some funds reported heavy losses.

Brokers said the restrictions were needed because clearing houses had raised collateral requirements sharply. Many users saw it differently, arguing that small investors were being blocked while large institutions could still trade.

The backlash has crossed party lines. Politicians from both the left and the right criticised the restrictions, and lawmakers have called for hearings. The episode raises several issues:

• The influence of social media communities on stock prices
• The business model of commission-free brokers and payment for order flow
• The settlement system and collateral demands during extreme volatility

Regulators said they are monitoring the situation. Whatever the outcome, the week has shown that online communities can move markets at a scale previously associated with large institutions, and that trust in market infrastructure can quickly become a political issue.