GameStop, other shorted stocks rally on news Robinhood easing trading limits

Shares of GameStop, AMC and other heavily shorted stocks rallied in premarket trading Friday, extending an overnight rally after Robinhood said it will resume limited trading of previously restricted securities, CNBC's Pippa Steven reports.

In a statement late Thursday allowing limited buys of these stocks, Robinhood said: “We’ll continue to monitor the situation and may make adjustments as needed.”

GameStop shares shot up by 75 percent to trade at US$339 in premarket trading, after closing down 44 percent to US$193.60 during regular hours Thursday. The stock’s high for the week is US$483.

Robinhood said 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.

“These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today,” the company said.

Amid the trading frenzy the online brokerage company, which is widely expected to go public this year, has tapped some of its credit lines, according to a person familiar with the matter.

As retail investors piled into the market, Robinhood and other retail brokerages restricted trading in several stocks that had bee targeted by short sellers. In such trades, investors borrow shares of a company in expectation that the stock price will go down, netting a profit when the short seller must cover the shares upon expiration of the trade.