The New York Stock Exchange repeatedly halted trading in the stock of the video game retailer GameStop on Feb. 25 as its price surged above $100 per share in overnight trading. The stock has been favored by small investors who congregate on the Reddit forum r/Wallstreetbets.
By 10 a.m. on Feb. 25, the exchange had blocked trading of GameStop four times, at 9:33, 9:42, 9:48, and 9:56 a.m., each time for about five minutes. That means traders were only able to buy it for about 10 minutes in the first 30 minutes after the exchange opened.
The price increased above $160 right after opening but then decreased to less than $110, coinciding with the first three halts. It then climbed as high as $180 in the afternoon trading.
The halts were triggered by the stock price increasing or decreasing too quickly, the exchange stated on its website, citing the Limit Up-Limit Down (LULD) rule. The rule was adopted by major exchanges in 2012 to trigger a 5- or 10-minute trading halt on an individual stock in some circumstances, such as when its price abruptly shifts up or down.
GameStop stock has been on a wild ride this year. Despite the company’s doubtful prospects, small investors bought into the stock partly in hopes that hedge funds that borrowed and short-sold the stock would be forced to buy it back, thus increasing its price.
The price increased from less than $5 per share in August 2020 to $30 in mid-January and then to nearly $500 per share at one point on Jan. 28.
But around Jan. 28, online trading platforms including Robinhood and Interactive Brokers blocked their users from buying the stock. The price then dropped to about $40 within days.
Robinhood was criticized by its users and some politicians for the decision, with critics speculating whether it was made to protect the hedge funds that were losing money on their bets against GameStop.
Robinhood Chief Executive Vladimir Tenev told Congress the restrictions were imposed so that Robinhood could comply with regulatory requirements imposed by the National Securities Clearing Corp. (NSCC), which clears and guarantees stock trades.
NSCC guarantees that each side of a stock transaction fulfills its side of the deal. Since the parties can take up to two days to settle transactions, NSCC requires security deposits from brokerages that would be drawn upon if some traders fail to deliver on their deals.
On the morning of Jan. 28, the NSCC informed Robinhood that its deposit requirements had doubled from the previous day. In addition, the NSCC imposed an “excess capital premium charge” of more than $2.2 billion, Tenev said. After Robinhood informed the NSCC that it had imposed the restrictions on GameStop and several other stocks, the charge was lifted.
The Depository Trust and Clearing Corp., which owns the NSCC, told Congress the “excess capital premium charge” was imposed automatically, but the decision to waive it was discretionary.
Update: The article was updated with a more recent Gamestop stock price development.