Updated at 4:32 p.m. ET
The GameStop stock-market roller coaster continued Friday as the video game retailer's shares shot up, the online broker Robinhood struggled for cash and securities regulators issued a stern warning for anyone trying to game the market.
Catapulted by seemingly unrelenting enthusiasm on Reddit, GameStop stock soared nearly 68%.
On Thursday, it had plunged 44%. That happened after Robinhood, an online trading forum, restricted trades on GameStop, AMC Entertainment and other stocks that have been driven up by amateur day traders on Reddit's r/wallstreetbets community, which now has 6 million members.
In recent days, the frenzy has put enormous pressure on Robinhood and other brokerages that have been attempting to keep up.
Robinhood was forced to quickly raise more than $1 billion from its own investors and tapped its bank credit lines so it could have enough money to post cash with market clearinghouses amid a high volume of trading. Those clearinghouses, which settle trades, need the brokerages ultimately to have the cash to be good for those trades.
Critics of Robinhood accused the brokerage firm of playing favorites Thursday by limiting trading in GameStop, AMC and other stocks that have been driven up sharply by Reddit members. The wallstreetbets traders have been battling Wall Street hedge funds that are short selling GameStop in a so-far unsuccessful bet that the company's shares will plummet.
Rep. Ro Khanna, D-Calif., whose district includes Silicon Valley, said Robinhood's move "showed how the cards are stacked against the little guy in favor of billionaire Wall Street Traders."
A member of Reddit's wallstreetbets forum wrote: "They are simultaneously: manipulating the system, taking advantage of people with less funds, preventing a greater number of shares from being purchased."
But Robinhood said the move to limit trading was a "tough decision" made amid "extraordinary circumstances in the market."
"We stand in support of you, our customers," Robinhood co-founder Vlad Tenev tweeted. "Democratizing finance for all means giving more people access, not less."
In a company blog post, Robinhood noted that it has "many financial requirements, including SEC net capital obligations and clearinghouse deposits. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously."
Robinhood has subsequently moved to allow "limited buys" of the stocks. That helped explain Friday's rebound in GameStop, which is up more than 1,600% in the past month — even though the company has had to shut hundreds of stores amid the pandemic and falling mall traffic. AMC jumped 54% Friday, though another Reddit favorite, American Airlines, dropped 5% after jumping 9% a day earlier.
The GameStop frenzy has also pressured other brokerages. In a message to clients, Charles Schwab cited "heightened trading volume and volatility across our entire industry" and "challenges with online functionality" at times.
Just before markets opened Friday morning, the Securities and Exchange Commission said it continues to closely monitor "the extreme price volatility of certain stocks' trading prices over the past several days."
The SEC also issued a warning: "We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity."