Day Trading Frenzy Prompts Broker Outages and Restrictions

Key Takeaways:

  • TD Ameritrade restricts trading of GME, AMC, BB
  • TD Ameritrade Mobile app and Robinhood experienced outages due to high trading volume

The unrelenting trading frenzy around GameStop and other highly shorted stocks has led to several broker outages and new restrictions on trading in several securities. 

TD Ameritrade became the first online broker to place restrictions on the trading of highly shorted stocks including GameStop (GME), AMC Entertainment (AMC), and Blackberry (BB) amid a multi-day rally spearheaded by retail investors and day traders.

The broker said that it has placed several restrictions on some transactions in GameStop, AMC Entertainment, and other securities in an effort to mitigate the risk of its clients. “We made these decisions out of an abundance of caution amid unprecedented market conditions,” it said.

The move came as GameStop’s stock popped nearly 110% at 12:35 p.m. Wednesday, and AMC’s stock jumped 180%. 

The unprecedented volumes of trading caused limited access to the TD Ameritrade Mobile app, the company said, encouraging users to use its website or other platforms. Meanwhile, earlier today users of Robinhood sent as many as 12,636 problem reports, citing issues with the app related to server connectivity and logging in, according to Downdetector. 

The New York Stock Exchange halted trading in GameStop for volatility nine times on Monday and five times on Tuesday.

Short Sellers Feel the Squeeze 

TD Ameritrade’s decision comes as short sellers battle a new class of retail investors and day traders that have flooded the stock market since the beginning of the coronavirus pandemic. Many of them have been part of a buying boom last year as they chased after struggling stocks they believe deserve a second chance. Online forums like Reddit's WallStreetBets have become a place for these new and experienced day traders to discuss the stocks.

Short sellers betting against video game retailer GameStop have already lost $5.05 billion mark-to-market in 2021, according to S3 Partners. As shares of GameStop soared on retail investor-fueled euphoria, short sellers who were faced with mounting losses and high borrowing fees were also forced to close their positions and buy, prompting what is known as a short squeeze.

Short sellers that experienced hemorrhaging losses include Melvin Capital, a hedge fund that started the year with $12.5 billion in AUM and lost almost 30% through Friday last week, and Citron Research, which covered the majority of its GameStop short position "in the $90s at a loss 100%." 

Article Sources

  1. Downdetector. "Problems at Robinhood." Accessed Jan. 27, 2021.

  2. NBC News. "Social media-driven trading frenzy for GameStop, AMC Entertainment sparks calls for scrutiny." Accessed Jan. 27, 2021.

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