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Credit…Tony Cenicola/The New York Times
Robinhood raised an additional $2.4 billion over the weekend, the trading app said on Monday, adding to the $1 billion it had to seek from its investors earlier last week.
“This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform,” Robinhood’s chief financial officer, Jason Warnick, said in a post on the company’s website.
The infusion was led by Ribbit Capital and included other existing investors like Sequoia Capital, Robinhood said. The company called it “a strong sign of confidence.”
The online trading firm has been at the center of a trading frenzy over the video-game retailer GameStop and other stocks, which have risen substantially over the past week.
Driven by a surge of interest among amateur investors — many of whom congregate on the Wall Street Bets forum on Reddit — GameStop’s shares soared 1,600 percent in January.
The sudden wave of buying of shares and options contracts has squeezed hedge funds that had bet on the stocks to fall. But it has also created complications for Robinhood. As its users embraced highly volatile stocks, the trading platform was forced to substantially increase the amount of money it deposits with the clearinghouse that processes its trades.
On Thursday, an arm of the Depository Trust and Clearing Corporation, Wall Street’s main clearinghouse for stock trades, demanded $3 billion in additional collateral from Robinhood, to cover risky trades by its customers, according to Vlad Tenev, the trading app’s chief executive. That was “an order of magnitude” more than was usually required, Mr. Tenev said in a conversation with the Tesla chief executive Elon Musk on the social network Clubhouse. That demand was later reduced to about $700 million.
Even so, Robinhood said Thursday night it had raised $1 billion from existing investors. The firm also tapped a credit line of at least $500 million.
“This was nerve-racking,” Mr. Tenev said.
The frantic price swings last week in stocks like GameStop and AMC Entertainment, led by retail traders aiming to take on Wall Street, have spread to a new target: silver.
The price of the precious metal jumped as much as 11.5 percent on Monday to the highest in eight years after online calls to create a “silver squeeze,” before giving up some of those gains later in the day. By midmorning, the price of silver was up 6 percent.
As silver spiked, shares of GameStop fell about 20 percent, retracing a small portion of last month’s surge. In the broader market, the S&P 500 and European and Asian markets were all higher.
Retail websites for buying silver coins and bars said they were experiencing high demand and there would be delays in shipping orders. Moneymetals.com, a dealer in precious metals, said it was not taking new orders on most of its silver products on Monday and put some restrictions on gold purchases as well. APMEX, another dealer, said it had a surge of new customers over the weekend.
“We have made strategic decisions to procure additional metal, locking up any metal we can find in the marketplace,” Ken Lewis, APMEX’s chief executive said in a statement on the company’s website. “It is also highly likely that we will need an additional day or two to fill orders based on current order counts.”
Shares in companies that mine for silver surged higher, too. Fresnillo rose 9 percent, though it too was well below its highest point of the day, and Polymetal International was up 5 percent. Both were among the biggest gainers in the FTSE 100 index in Britain.
On the New York Stock Exchange, Silvercorp Metals rose 15 percent and Fortuna Silver Mines rose 12 percent.
But the silver market is fundamentally different than that of beleaguered companies like AMC and GameStop.
The stocks that caught the attention of the army of day traders over the past week, spurred on by memes on Reddit, had been targeted by hedge funds that were betting on its decline. By driving the price of these stocks higher, the traders “squeezed” the firms holding short positions, forcing them to buy the shares.
Silver prices, on the other hand, had already been rising before the recent interest, and some users on Reddit have warned against a “silver squeeze,” saying it would benefit the same hedge funds and investors they toppled last week. Also, silver is a much bigger and deeper market, making it harder to influence.
The price of silver climbed nearly 50 percent last year, and some institutional investors expected it to outperform gold this year.
The S&P 500 index rose about 1.5 percent, rebounding from a loss of more than 3 percent last week — its worst week since late October.
GameStop’s shares fell about 20 percent, having gained 400 percent last week and more than 1,600 percent in January. Another target of the trading frenzy, AMC, rose 8 percent, paring its gains from this morning. It gained about 280 percent last week.
The GameStop strategy seems to have worked.
The headline-grabbing surge in the video game retailer’s shares last month came as a group of traders, organized on Reddit and other online forums, set out to inflict financial pain on Wall Street institutions. Those hedge funds had placed large bets against GameStop — a process known as shorting the stock. If the price rose enough they would be sitting on huge losses and, eventually, be forced to rush out of those positions in what’s called a short squeeze.
Data released on Monday suggests that this in fact is what has happened. Short interest in GameStop, a measure of the volume of bets against the stock, fell by more than half last week, according to the market-data firm S3 Partners.
“The GME short squeeze has begun,” wrote Ihor Dusaniwsky, a managing director at S3, referring to GameStop by its stock-trading symbol. He said the stock’s short sellers are now down more than $13 billion.
Many market watchers suspected as much last month, as they saw the price of GameStop surge from less than $20 a share to more than $400. After all, to “cover” a short — or close out the bet on a stock’s decline — an investor has to buy the shares, and if enough funds are clamoring at once to buy the stock as they seek to limit their losses it will surge, like GameStop’s did.
(That’s not to mention that a few large investors had to fess up to the losses. Most notably, Melvin Capital sustained a 53 percent loss for the month of January and needed to raise rescue capital from some other firms.)
But on Monday, shares of GameStop were retreating — likely the result of a number of factors including that the buying pressure by the short-sellers might have eased up, for now. The shares fell about 23 percent.
The drop also came as some investors turned their attention to the market for silver, where the price of the precious metal jumped to the highest since 2013 and websites selling silver coins reported unusually high demand. And, the investors who were bidding up the GameStop stock on apps like Robinhood still faced trading restrictions that limited how much they could buy.
Does it mean the GameStop trade is over? It’s far too soon to know. For one thing, even if short interest has fallen by half, many of the small traders intend to stick with GameStop until every last short seller has thrown in the towel.
Credit…Kayana Szymczak for The New York Times
The recent surge in GameStop’s stock — propelled by individual investors who banded together on Reddit — has put new pressure on the Biden administration’s pick for the top job at the Securities and Exchange Commission, Gary Gensler.
Mr. Gensler would inherit the agency as it faces calls to more tightly regulate online trading programs such as Robinhood that critics say enable unsophisticated investors to make risky financial bets, Deborah B. Solomon reports in The New York Times. But defenders of such platforms say they help flatten out inequities in the financial markets that have long favored deep-pocketed firms over average people. The S.E.C. said it was “closely monitoring” the situation in a statement.
“What’s going on with GameStop has almost nothing to do with GameStop as a company,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “When you see the markets essentially turned into a video game or turned into a casino, that actually has some pretty serious repercussions for the way we use the markets to fund our economy.”
The question for Mr. Gensler, and the agency, will be what, if anything, they should do about concerns from people like Ms. Roper.
The S.E.C.’s role has traditionally been to ensure that companies disclose enough information for people to make informed investment decisions. But it does so by enforcing laws that were written before the advent of trading platforms such as Robinhood. Mr. Gensler’s first moves, those who know him say, will be investigating the GameStop surge to figure out who benefited, as there is speculation that it may have been fueled by some big funds after all.
Credit…Zack DeZon for The New York Times
Robinhood, the stock platform that put restraints on trading of shares like the video game retailer GameStop and the movie theater chain AMC after a frenzy of buying and selling last week, has decreased the number of companies with trading restrictions to eight from 50, according to an update on its website.
The brokerage firm, which has attracted millions of millennials by eliminating trading fees and making stock trading easy, said last Thursday that it would limit buying of the kinds of securities that set off an enormous rally in shares of GameStop, AMC and a number of other companies.
The move drew ire from investors, as well as leaders across the political spectrum — including Representative Alexandria Ocasio-Cortez, Democrat of New York; Senator Ted Cruz, Republican of Texas; and Senator Elizabeth Warren, Democrat of Massachusetts — who accused the platform of manipulating the market to favor big traders.
“It was not because we wanted to stop people from buying these stocks,” Robinhood said in a blog post, adding that the platform had to take steps to limit the securities because “the required amount we had to deposit with the clearinghouse was so large.”
Wall Street’s main clearinghouse for stock trades on Thursday demanded $3 billion in additional collateral, Robinhood’s chief executive, Vladimir Tenev, told Elon Musk in a conversation on the social network Clubhouse late on Sunday.
Robinhood removed barriers to some trades on Friday and said it had raised $1 billion to help ensure it had enough money to cover the transactions.
The platform increased the number of restricted companies to 50 before paring down the list, which includes GameStop, BlackBerry, AMC Entertainment Holdings, Express, Genius Brands International, Koss Corporation, Naked Brand Group, and Nokia.
Credit…Elijah Nouvelage/Agence France-Presse — Getty Images
The owner of The Charleston Gazette-Mail and other West Virginia news publications filed a lawsuit in federal court on Friday against Google and Facebook, accusing the companies of profiting from “anticompetitive and monopolistic practices” that have damaged the newspaper business.
The publisher, HD Media, said the lawsuit was the first of its kind to be filed by a newspaper company. The suit is focused on the centrality of Google to the online advertising market, as well as an agreement between Google and Facebook that is the center of an antitrust lawsuit brought by 10 state attorneys general. It is estimated the two tech companies together accounted for more than half of all digital advertising spending in 2019.
“Google and Facebook have monopolized the digital advertising market, thereby strangling a primary source of revenue for newspapers across the country,” HD Media said in the suit, filed in U.S. District Court of the Southern District of West Virginia.
“There is no longer a competitive market in which newspapers can fairly compete for online advertising revenue,” the suit continued.
The rise of digital media has led to sharp drops in revenue for many newspaper companies, which once depended on print ads and print subscriptions to stay in business. More than one in four American newspapers shut down between 2004 and 2018, and tens of thousands of newsroom jobs have disappeared.
In addition to The Gazette-Mail, which in 2018 won a Pulitzer Prize for investigative reporting, papers owned by HD Media include The Herald-Dispatch and The Logan Banner.
“We invite every other newspaper in America to join this cause,” Doug Reynolds, the managing partner of HD Media, said in a statement on Friday. “We are fighting not only for the future of the press but also the preservation of our democracy.”
Tech companies have come under new scrutiny in recent months. In October, the Justice Department filed suit against Google, accusing the company of illegally protecting its monopoly over internet search and the digital advertising market. In two lawsuits filed in December, dozens of states accused Google of abusing its dominance of the online ad business and thwarting competitors in search.
Last month, the lyric-annotation company Genius Media and two left-wing magazines, The Nation and The Progressive, filed an antitrust lawsuit against Google — as well as its parent company, Alphabet, and a sibling company, YouTube — citing what the suit called “anticompetitive conduct” in the digital ad market.
Google referred a request for comment to a statement the company issued this month in response to a separate complaint. In the statement, the company said its ad business “helps websites and apps make money and fund high-quality content.” Facebook did not immediately reply to a request for comment.
Melvin Capital Management, one of the hedge funds pilloried on social media message boards for its short-selling bets that GameStop shares would fall, lost 53 percent on its portfolio in January, a person familiar with the matter said.
A principal reason was the huge losses the firm suffered when small investors bid up the stock of GameStop. The Wall Street Journal first reported the amount of Melvin Capital’s loss.
Founded by Gabe Plotkin, a protégé of the hedge fund billionaire and New York Mets owner Steven A. Cohen, Melvin Capital had $8 billion in assets under management at the end of January. That amount included $2.75 billion that Mr. Cohen’s fund, Point72, and Citadel, another hedge fund, put into Melvin Capital, as well as fresh capital from new investors, the person said.
Hedge fund returns at Citadel fell 3 percent for the month, about a third of which was caused by a $2 billion investment it made in Melvin about a week ago, according two people briefed on Citadel’s results.
Melvin Capital exited its position in GameStop after having to raise additional funds, Mr. Plotkin confirmed to CNBC last week. The firm was a main player in the market drama set off by a group of day traders who have been bidding up a handful of stocks that Wall Street had given up on — forcing losses on big hedge funds.
The traders appear to be mostly small investors focused on a handful of stocks like GameStop and AMC Entertainment. But they have emerged as a new risk factor for large firms that had bet against those companies with what are known as short sales. While the financial damage on Wall Street appears so far limited to a number of firms, the volatility shook the broader market. The S&P 500 fell 1.9 percent on Friday, finishing its worst week in three months.