NEW YORK • GameStop snapped a dizzying six-day rally to see nearly US$11 billion (S$14.6 billion) in market value wiped out after moves by brokerages to curb trading of the stock on their apps whipped up volatility and enraged the company's retail fan base.
The stock plunged 44 per cent on Thursday after Robinhood Markets, Interactive Brokers Group and others took steps to curtail activity in several high-flying stocks, including GameStop and AMC Entertainment Holdings.
E*Trade Financial is preventing customers from purchasing shares of both firms, according to a person familiar with the matter.
Video-game retailer GameStop triggered 19 volatility halts on its way to shedding more than twice what it was worth on Monday. Volume also fell, with about 55 million shares traded by Thursday afternoon, a far cry from the Jan 22 record of 197 million.
The trading curbs resulted in howls of outrage on Reddit's WallStreetBets forum, which has been the launching point for many of this week's blistering rallies, and Robinhood was hit by lawsuits from customers.
The moves also prompted lawmakers to criticise restrictions imposed on retail investors.
Democratic Senator Sherrod Brown, the incoming United States Senate banking chairman, said he plans to hold a hearing on the "current state of the stock market".
The clampdown by brokerages extended beyond GameStop to other popular stocks such as BlackBerry that have surged this week, burning short-sellers and hedge funds.
The phenomenon attracted the attention of regulators on Wednesday, with the Securities and Exchange Commission saying it was actively monitoring the situation.
"The inability to trade depressed the volume, and high volume is what kept the stock trading at a high level," said Wedbush Securities analyst Michael Pachter.
"I am actually surprised the trading platforms think they can manage the market this way, and expect they will reverse their decision shortly."
For a brief moment on Thursday morning, GameStop became the biggest stock on the Russell 2000, taking over from Plug Power.
The video-game retailer has advanced more than 900 per cent this year, fuelling a rally in retail trading across the board and leading some short-sellers to throw in the towel. However, that rally seemed to stall out on Thursday.
"With a company like GameStop, at some point it comes back to earth. Even the folks on Reddit know that," said Mr Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California, which manages around US$2 billion. "The market's going to find the right price, the price that's not a short-term squeeze price."
Trading has remained volatile since the last regular US session, in which the stock rose 135 per cent. Gains were briefly pared post-market after the Reddit page that has fuelled this month's surge was made private and then later reopened by the group's moderators.
In the time the original WallStreetBets board was down, an alternative forum called Wallstreetbetsnew topped 350,000 members.
"This will burn itself out, like any other mania, but there will likely be some impact on the market as a whole," said Front Barnett Associates' chief investment officer Marshall Front.
"That these eye-popping moves happen after a nearly 70 per cent move in the S&P since March shows there's plenty of room for a pullback."
GameStop's rise has prompted analysts at Citigroup to warn investors that some exchange-traded funds (ETFs) face an outsized influence from the video-game retailer as its boom has altered their composition.
Analyst Scott Chronert advised clients to take "special note" of ETFs that incorporate leverage in their funds. A larger allocation to the stock may materially change fund performance for now until rebalance dates occur, he said in a report.
BLOOMBERG
