On January 27th, Reddit users on the subreddit r/WallStreetBets collaborated to synchronously buy millions of shares of the slowly dying companies GameStop, AMC Entertainment, Blackberry, and others. GameStop emerged as the rally’s flagship, with the sudden Reddit-driven swell in demand launching the stock’s price into low Earth orbit, up nearly 1,200% from a week ago [1]. This is a catastrophe for multi-billion-dollar hedge funds like Point72, Citron Capital, Melvin Capital, D1 Capital Partners, and Maplelane Capital, who took short positions on the brick-and-mortar video game retailer, betting on GameStop’s bankruptcy [1]. Market Insider reports that these hedge fund short sellers have collectively lost over $5 billion* as they battle against the army of small-arms Reddit traders who continue to pump the stock price up [1]. Prior to the January 28th opening bell, the commission-free online brokerage Robinhood announced that GameStop trading – along with AMC, Blackberry, Bed Bath & Beyond, Nokia, Kosh, and others – would be restricted “to protect the firm and [the] customers” from high volatility and from unpredictable market conditions [2]. Halting trading on the specific collection of stocks whose recent trading patterns have adversely affected multi-billion dollar hedge fund interests is unsavory on its face yet, impossibly, it gets worse. Robinhood didn’t equilaterally freeze all trading activity across these Reddit-targeted stocks. Instead, they locked down any new buying activity on these stocks, while leaving the selling market a free-for-all. Stocks of GameStop (and others) could only be sold, not bought. In a market where any buying pressure on a company raises the price of its stock while any selling pressure lowers the price of its stock, Robinhood only gave GameStop price one direction to move: down. Investopedia defines market manipulation as, “the act of artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain.” By restricting buy orders (while sell orders where permitted), Robinhood mechanically punched a hole in GameStop's valuation to bleed out price strength which had previously been supported by millions of traders' private capital. By forcing GameStop’s stock price into the dirt, Robinhood effectively appointed itself as the arbiter of company valuation. It appeared that the brokerage itself decided that GamesStop had become too overvalued and forcibly bent the stock’s price to conform to what it arbitrarily deemed as “fair value.” A brokerage is charged with facilitating smooth and fair trading through matching buy/sell orders, not with picking winning and losing companies. Forcing a stock’s price action in a certain direction is manipulatively and unfairly “influenc[ing] the behavior of the market;” it is privately valuing companies and marketing them to buyers in a way that flies against our buyer-valued free market. Hedge-fund nepotism is also implicit in Robinhood’s GameStop purchasing restrictions. In restricting buy orders, Robinhood favors GameStop short sellers by making bullish positions impossible. The fact that Robinhood favors short selling hedge funds the moment that billions of hedge fund dollars are at risk of flipping into the hands of retail (individual) investors is no coincidence; Robinhood has cultivated valuable relationships with several hedge fund market-movers and fears losing favor with the influence these companies provide. According to the Washington Post, “Citadel and other market makers pay Robinhood a small fee for this privilege [of looking at Robinhood-collected market data], which gives the market-making firms information about retail trading patterns. Citadel said it uses this information to improve its trading algorithms'' [3]. Under the guise of protecting traders from volatility, Robinhood barred traders from opening GameStop positions to bail out short selling hedge funds with whom they had mutually profitable relationships. Robinhood’s attempt to interfere with GameStop’s stock price through biased restrictions is a disreputable abuse of brokerage power and should be condemned. *1/29/21 - CNBC now reports hedge fund losses are as great as $20 billion. Ouch. References: [1] https://markets.businessinsider.com/news/stocks/hedge-funds-torched-wall-street-bets-gamestop-short-squeeze-reddit-2021-1-1030016596 [2] https://www.reuters.com/article/us-retail-trading-robinhood-ceo/robinhood-ceo-says-limited-trade-to-protect-firm-and-customers-idUSKBN29Y017?il=0 [3] https://www.washingtonpost.com/business/2021/01/29/robinhood-citadel-gamestop-reddit/ If intrigued, here's some further (not-so-serious) reading straight from a r/WallStreetBets rebel alliance member who's fighting against hedge fund interest: https://isthesqueezesquoze.com/