PEORIA, Ill. — Robinhood has been at the forefront this week of a skyrocketing GameStop stock as users of Reddit drove the price up to over $300 a share.
On Thursday, Robinhood was one of many online brokers to limit buying of the stock.
This decision sparked uproar among many, including United States Representative Alexandria Ocasio-Cortez and Senator Ted Cruz.
Cortez tweeted Thursday that Robinhood’s decision was “unacceptable” and would support a hearing if necessary as a member of the Financial Services Committee.
This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
As a member of the Financial Services Cmte, I’d support a hearing if necessary. https://t.co/4Qyrolgzyt
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
Cruz then tweeted that he fully agreed with her statement.
According to Attorney Ambrose McCall, Robinhood was within their rights to make the decision based on Section 16 of their Customer Agreement.
“I understand that Robinhood may, in its discretion, prohibit or restrict the trading of securities, or the
substitution of securities, in any of My Accounts,” Section 16 reads.
As people heard about the rising GameStop stock, call options, which is what happens on apps like Robinhood, increased as people wanted a piece of the pie.
According to McCall, Robinhood didn’t have enough money to make the number of transactions being requested through their app, so they had to borrow hundreds of millions of dollars this week.
“The rate of people buying things on options has gone up 30%,” said McCall. “Just a year or two ago, people thought it was incredible that there were tens of millions of orders a day on call options — we’re up over 30 million a day now.”
McCall said Congress will have to take action quickly, because this is something the public has never seen before.
“I don’t think this is something they can sit on,” said McCall. “This is requiring a lot of quick attention by a Congress that may have its mind elsewhere but needs to focus.”
McCall said Congress has to act quickly because it could cause problems across the whole stock market if left alone.
Full interview with Ambrose McCall:
