The US Securities and Exchange Commission is signaling it's going to investigate Robinhood for blocking users from buying shares in GameStop and seven other stocks.
“The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” the SEC said in a statement on Friday.
The US regulator didn't call out specific companies in its statement, but Robinhood users welcomed the news. The company’s sudden decision on Thursday to block the stock buys caused the share prices for GameStop and others to plummet.
Still, in the same statement, the SEC implied it might crack down on the meme stock craze, too. The regulator cited the "extreme stock price volatility" as a problem that could expose investors to "rapid and severe loses" while undermining market confidence.
“In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” the SEC said. “Market participants should be careful to avoid such activity.”
“Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities,” the regulator added.
The statement is both broad and vague. But the phrase "protect retail investors" could also mean the SEC is seeking to slam the brakes on the ongoing meme stock craze over concerns it's become a pump-and-dump scheme. However, any regulation will no doubt face backlash from retail investors and possibly even US lawmakers.
“We now need to know more about Robinhood app’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” tweeted US Rep. Alexandria Ocasio-Cortez (D-New York) on Thursday.
Ocasio-Cortez sits on the House Financial Services Committee, which has pledged to hold a hearing on the issue, particularly as it relates to "short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors," says Committee Chairwoman Maxine Waters, D-Calif. In the Senate, incoming chairman of the Banking Committee, Sherrod Brown of Ohio, says he too will hold a hearing on the same topic.
In the meantime, Robinhood plans on resuming “limited” stock buys for GameStop and the eight other stocks some time on Friday. The stock price for GameStop has since rebounded from $197 on Thursday to now $324 a share.