Robinhood will permit restricted purchases of restricted shares on Friday, GameStop leaping by hours

The logo for Robinhood is displayed on a smartphone in an arranged photo.

Gabby Jones | Bloomberg | Getty Images

Stocks of GameStop, AMC, and others climbed into expanded trading Thursday after Robinhood announced it would resume limited trading in previously restricted securities on Friday.

“Starting tomorrow, we plan to allow limited purchases of these securities. We will continue to monitor the situation and make adjustments if necessary,” Robinhood said in a statement.

GameStop shares rebounded after Robinhood’s decision in expanded trading. The stock was up 32% to trade at $ 255 after close of trading after closing 44% at $ 193.60 during Thursday’s regular business hours.

Robinhood said its decision to restrict trading – which annoyed many users – was in order to meet the capital requirements imposed by the SEC on broker-dealers.

“These requirements serve to protect investors and markets and we take our responsibility to comply with them seriously, including through the measures we have taken today,” said the company.

In the midst of the trading frenzy, the company, which is widely expected to go public this year, has drawn on some of its lines of credit, according to someone familiar with the matter.

As retail investors rushed into the market, Robinhood, along with other retail brokers, restricted trading on multiple names on Thursday. The free stock trading app said that in some cases, investors could only sell their positions and not open new ones.

In addition to GameStop, restricted trading drove shares of AMC Entertainment and BlackBerry down 56% and 41% respectively on Thursday.

Interactive Brokers has taken similar steps, and both it and Robinhood have increased the margin requirements on certain securities. It is not uncommon to increase margin requirements, but the move to restrict trading was unusual and more extreme, which annoyed and confused some users.

Increasing the margin requirements increases how much money an investor using leverage and derivatives must have in their brokerage account after buying stocks. TD Ameritrade and Charles Schwab increased the margin requirements on Wednesday.

Retail investor influence – most notably in GameStop – has drawn the streets under its spell for the past few days, appealing to a new class of traders who grew up amid the pandemic.

Individual investors create brief shortages by piling on names, betting against the hedge funds, and forcing the funds to rush to cover their losses. This usually pushes stocks higher. Private investors promote their activities on WallStreetBets Reddit board of directors, which has more than 3 million members. Some see it as small private investors fighting back against the Wall Street establishment.

Amid the meteoric pops – and then drops – some lawmakers are calling for an investigation. The Democratic leaders of the House Financial Services Committee and Senate Banking Committee said they would hold hearings.

Rep. Alexandria Ocasio-Cortez, DN.Y., was among the lawmakers who commented on the trading activity and said in a tweet that Robinhood’s decision to restrict trading was “unacceptable”. Ted Cruz, Senator from Texas, republished Ocasio-Cortez’s tweet on his own page, writing, “I totally agree.”

Robinhood, whose mission is to democratize investment for all, has seen its users amid the pandemic, and the app now has more than 13 million users. The expansion came with some mounting pains, including several failures on key market days. It has also increasingly attracted legislature attention

Meanwhile, Senator Elizabeth Warren said the chaotic trading in the market was due to a lack of SEC control.

“We need an SEC that has clear rules on market manipulation and then has the backbone to enforce and enforce those rules,” she told CNBC. “To have a healthy stock market, you have to have a cop on the beat.” The SEC did not respond to CNBC’s request for comment.

Here is the full statement from Robinhood:

“Over the past year we have seen financial markets become a voice for the voiceless. We have seen a new generation of people come into the markets and spark conversations about what it means to be an investor. Our clients showed the world This investment is for everyone – not just institutional investors and hedge funds.

Given this week’s exceptional market conditions, we made a difficult decision today to temporarily restrict purchases of certain stocks. As a brokerage firm, we have many financial requirements including the SEC’s net capital commitments and clearinghouse deposits. Some of these requirements fluctuate due to the volatility in the markets and can be significant in the current environment. These requirements are there to protect investors and the markets, and we take our responsibility to comply with these requirements seriously, including through the actions we have taken today.

Starting tomorrow, we plan to make limited purchases of these securities. We will continue to monitor the situation and make adjustments if necessary.

This was a risk management decision that was not made on the direction of the market makers we are traveling to. We are beginning to responsibly open up trading in some of these securities.

We support our clients and the freedom of private investors to shape their own financial future. The democratization of finance has been our guiding star since our earliest days. We will continue to develop products that give more people – not fewer – access to our financial system. We will continue to monitor market conditions to restore full trading of these securities. We’ll update this help article with the latest changes.

We are deeply grateful to our customers. “

– CNBC’s Maggie Fitzgerald, Leslie Picker, Tucker Higgins and Thomas Franck contributed to the coverage.