GameStop's 'Twist After Twist'... A 230-Year First in the US Stock Market

39% Surge Then 67% Reversal Drop... Close Down 44%
'Ant' Investors Who Beat Short Sellers Face Buy Restrictions
Individuals Still Encouraged to Buy
Criticism of Tilted Playing Field Grows
60% Sharp Rise After Buy Restriction Withdrawal Announcement

[Asia Economy New York=Correspondent Baek Jong-min] A stock that surged 39% and then plunged 67% has appeared. Such a dramatic rise and fall, rarely seen in typical stock markets, occurred on the New York Stock Exchange on the 28th (local time).

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The protagonist is GameStop, which recently attracted attention due to the battle between individual investors and short sellers. Until the day before, the background was individual investors' retaliatory buying against hedge funds' short selling, but this sudden surge and plunge happened while individual trading was restricted.

◇ Brokerage firms blocked individual buying and only allowed selling = GameStop surged 135% the previous day and continued to rise more than 39% until 10 a.m. that day, reaching $483, just shy of breaking $500. Ninety minutes later, the stock plunged 67% to $112. Investors who bought at $483 experienced a 76% loss within 90 minutes. The stock price later showed signs of recovery but eventually closed at $193, down 44% from the previous day.

The theater chain AMC, which attracted many individual investors, also plunged 57%, BlackBerry 42%, and Bed Bath & Beyond 36% simultaneously.

Until the day before, individual investors had targeted stocks heavily shorted by hedge funds and bought them intensively, driving up prices. The 'short squeeze' phenomenon occurred as short sellers, facing mounting losses, bought back shares, causing these companies' stock prices to skyrocket.

The sharp decline in stock prices on this day occurred after stock trading applications favored by individual investors, such as Robinhood and Interactive Brokers, restricted individual buying of stocks that had been heavily traded by individuals. The limitation on individual buying, which was the driving force behind the price increase, and allowing only selling led to the price drop.

Robinhood is a registered stock brokerage firm with the U.S. Securities and Exchange Commission (SEC). Criticism began to pour in over the brokerage firm banning stock purchases, despite not being a regulatory authority. Unlike traditional brokerages, Robinhood charges no commissions and has a very simple account opening process, so many U.S. individual investors use this app.

Criticism arose that Robinhood, which grew rapidly supported by individual investors who propped up the stock market during the COVID-19 crisis, betrayed them with this move. The 'blades' of 4 million individual investors united around the Reddit community 'WallStreetBets' turned toward the brokerage firm. Some encouraged further buying, expressing betrayal that the brokerage firm they thought was on their side was actually a Wall Street company aligned with short sellers.

According to CNBC, a post by an individual investor saying "Don't fear the GameStop drop. Keep buying and holding" received over 1,000 comments. Elon Musk, CEO of Tesla, also sided with individual investors. In a tweet that day, he stated, "You need to own a house or car to sell it, but you can sell stocks you don't own. Short selling is a scam."

◇ Regulatory authorities talk big... fueling anger = This measure came after the SEC said the day before that it was reviewing issues related to GameStop stock trading. Robinhood changed its stance following the regulator's remarks. The Wall Street Journal (WSJ) reported that the SEC would focus more on the possibility of individual investors manipulating stock prices rather than the short selling issue emphasized by individual investors.

While the SEC hesitated, Senator Elizabeth Warren, known as Wall Street's 'grim reaper,' stepped forward. In an interview with CNBC, Senator Warren said, "A healthy stock market needs a police force. That is the SEC." Senate Banking Committee Chairman Sherrod Brown announced plans to hold a hearing to review the issue. Letitia James, New York State Attorney General, also revealed that an investigation into Robinhood had begun.

Ultimately, Robinhood backed down that afternoon, stating, "We restricted purchases of stocks like GameStop to meet the standards we must uphold as a brokerage, but starting tomorrow, we will allow limited purchases." Following Robinhood's announcement to allow buying, GameStop's stock price rose 60% in after-hours trading compared to the closing price that day. The battle surrounding GameStop stock is still ongoing.

This content was produced with the assistance of AI translation services.