Grapevine-Based GameStop's Stock Surge Shaking Wall Street
DALLAS (CBSDFW.COM) - Stock-trading platform, Robinhood announced Thursday, Jan. 28, they were restricting transactions for certain stocks.
That includes Grapevine-based GameStop and AMC.
Those who own shares can sell them, but Robinhood said it would not process any purchases of those stocks.
Some call it a battle between Wall Street and Main Street.
"Some of these stocks that are making outrageous moves, it really doesn't have anything to do with the value of the company," Senior Vice President of Investments for Morgan Stanley, Jim LaCamp said.
The struggling video game retailer GameStop's stock has been making stupefying moves this month, wild enough to raise concerns from professional investors on Wall Street to the hallways of regulators and the White House in Washington.
LaCamp explains this all started when Wall Street hedge funds decided to short, or bet against, GameStop due to the company's low performance.
Short selling works by borrowing shares from a stock holder, selling the shares thinking the price will go down and then hopefully, purchasing the shares owed back at a lower price, then returning them to the stock holder.
Obviously, making a profit by doing so.
Wall Street Bets on Reddit and other amateur stock investors online saw what the hedge funds were doing.
"They all get on the same side and they all start buying," LaCamp said.
This drove GameStop's stock upwards in spite of the hedge funds. The hedge funds still had to cover their shorts. Again, driving the price higher and as this gained more attention online, even more people bought in.
Now, this same situation is happening with other stocks online communities are getting behind such as AMC and Blackberry.
"Then the momentum starts to feed on its self," LaCamp said. "People say oh look at the move it made yesterday, I got to get in on this"
LaCamp warns this kind of volatility works both ways.
"This kind of outrageous move, they're taking an extraordinary risk," he said.
Corporate and securities attorney Marty Rosenbaum said there's now speculation on whether this could lead to new regulations or laws.
"There's activity from the exchanges," he said. "I've heard that the SEC is looking at the trading and all the communications from an enforcement point of view. Have people been violating the securities laws by making fraudulent statements? But it's hard to say whether anything will actually be done."
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