The volatility of the video game retailer’s stock and the role of online trading platforms will now be the subject of investigations by lawmakers in both the House and Senate.
GameStop’s stock price opened the day at $350, spiked to $469, plunged down to $115, before climbing back up and ending the day at $193.60, an overall loss of 44 per cent.
The company’s stock has been the subject of massive online investment spurred by the Reddit group WallStreetBets, that has seen it increase by nearly 2,000 per cent.
The rapid increase has seen amateur traders scoop huge profits but piled up massive losses for hedge fund managers and Wall Street investors with short positions.
Earlier in the trading day Robinhood, which has more than 13 million users, announced that it was restricting users from buying new shares in the stock because of “market volatility”.
Instead, they would only allow people to close their positions and allow them to sell off GameStop.
“We’re humbled to have helped many people invest in the markets for the first time,” the company said in a statement.
“And we’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures.”
Robinhood also restricted trading in other heavily-shorted companies targeted by the Reddit group, which included AMC, BlackBerry, Best Buy, Express, GameStop, Koss, Naked Brand Group and Nokia.
Other online brokerages such as TD Ameritrade, Interactive Brokers, and Webull also restricted trade in the suddenly popular stocks.
"TD Ameritrade has not halted trading in any securities. We have placed restrictions on some transactions in $GME and other securities," the company said in a statement.
"Restrictions, which differ from security to security and are subject to change, may include actions like increasing margin requirements, or limiting certain types of transactions, like short sales and those that may involve unlimited risk.”
Democratic congresswoman Alexia Ocasio-Cortez said that Robinhood’s actions had been “unacceptable” and she would support a hearing “if necessary”.
"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,” she wrote on Twitter.
Tesla founder Elon Musk, who earlier in the week encouraged the investment action against short sellers, tweeted that he “absolutely” supported Ms Ocasio-Cortez’s position.
House Financial Services Committee chairwoman Maxine Waters announced she would hold public hearings after multiple members of the committee called for an investigation.
Ms Waters said the Financial Services Committee will hold a hearing "to examine the recent activity around GameStop stock and other impacted stocks with a focus on short-selling, online trading platforms gamification, and their systemic impact on our capital markets and retail investors.”
Senator Sherrod Brown, the incoming chair of the Senate Banking and Housing Committee, announced that he planned on holding a hearing on the “state of the stock market”.
"People on Wall Street only care about the rules when they’re the ones getting hurt," said Mr Brown in a statement.
"American workers have known for years the Wall Street system is broken – they’ve been paying the price.
"It’s time for SEC and Congress to make the economy work for everyone, not just Wall Street.”
Robinhood was also sued by users in New York and Chicago for the restrictions.
And the pressure against the company seemed to pay off as Robinhood announced that it would walk back its policy and “allow limited buys of these securities” when the stock markets open on Friday.
"We’ll continue to monitor the situation and may make adjustments as needed," said the company in a blogpost.
"To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to.”
The Securities and Exchange Commission, whose role is to maintain “fair, orderly, and efficient markets” has said it is monitoring the “volatility in the options and equities markets” and “working with our fellow regulators to assess the situation”.
Observers have said that SEC investigators could look into market manipulation in the GameStop investments.
Senator Elizabeth Warren called for the SEC to do more to handle “market manipulation”.
“The bigger issue for me is the SEC's inability and unwillingness to deal with market manipulation," she said in an interview on CNBC.
"To have a healthy stock market, you've got to have a cop on the beat. That should be the SEC. They need to step up and do their job."
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