Stocks on Robinhood's restricted trading list jumped on Friday, after the online brokerage said it would resume limited trading in the heavily shorted names.
GameStop surged 113% at its session high shortly after the opening bell. The stock was subsequently halted for trading due to volatility. Throughout the session GameStop bounced around in volatile trading, before ultimately closing 68% higher. For the week, the stock gained 400%.
For some of the stocks, Friday's spike erased heavy losses sustained during the prior session after Robinhood and other retail brokerages announced restrictions on a handful of stocks, including in some cases not allowing customers to buy new shares and only sell. GameStop, for example, slid 44% on Thursday.
In a statement late Thursday announcing that it would resume trading in the blacklisted stocks, Robinhood said: "We'll continue to monitor the situation and may make adjustments as needed." The start-up added that its earlier decision to restrict trading — which angered many users — was necessary in order to comply with capital requirements mandated by the SEC for broker dealers.
Brokerages like Robinhood often lay out money to investors to make trades. If a large number of the investors are hit with big loses and can't cover the borrowed funds, the brokerages could face huge losses.
Interactive Brokers took similar steps as Robinhood, with both also raising margin requirements on certain securities. It is not unusual to raise margin requirements, but the move to restrict trading was more extreme, which angered and confused some users.
The decision followed retail investors flocking en masse to some of the market's most heavily shorted names, forcing hedge funds and those on the other side to rush to cover their losses. This, in turn, drives share prices even higher. Investors turned to popular forums like Reddit's WallStreetBets board to discuss their trades.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in expectations that the market value will fall below that level when it's time to pay for the borrowed shares.
Two of the top three highest-volume days going back to at least 2007 occurred this week as the trading frenzy wore on, prompting a number of lawmakers to weigh in on whether regulatory bodies should take action.
Retail investing has spiked amid the pandemic, and on Friday Robinhood raised over $1 billion and tapped credit lines to ensure that it had the capital required to offer trading in the volatile names.
"By drawing on our credit lines, which we do all the time as part of normal day-to-day operations, we get more capital that we can deposit with the clearing houses and that will allow us to enable ideally more investing with fewer restrictions," Robinhood CEO Vlad Tenev told CNBC's Andrew Ross Sorkin on Thursday evening.
Other companies are also reportedly tapping the market.
AMC is reportedly looking to raise additional capital amid the more than 270% jump in its shares this year, according to Reuters, citing sources. On Monday, AMC said that since Dec. 14 it had raised $917 million of new equity and debt capital.
Meanwhile, American Airlines on Friday said it is looking to raise $1.12 billion through a stock sale.