GameStop hearing - Updates as Roaring Kitty, and Reddit and Robinhood CEOs testify

Highlights from the Congressional hearing

Hedge funds, Gamestop, Reddit investors explained

Five of the key players in the GameStop stock trading saga appeared before a congressional committee to answer questions about their role in January’s tumultuous market activity.

The House Committee on Financial Services is the first governmental body to call witnesses to testify after retail investors mobilised on Reddit and bought shares in retailer GameStop, sending its stock price rocketing.

Their action sent hedge funds with short positions looking for emergency bailouts and led the stock trading platform Robinhood to pull the plug on future trades of the stock by its users. The share price has since sunk back from a peak of $483 to $45.

At the hearing on Capitol Hill, lawmakers are questioning Robinhood CEO Vlad Tenev, Reddit CEO Steve Huffman, Citadel CEO Ken Griffin, Melvin Capital founder Gabe Plotkin, trader Keith Gill, known “Roaring Kitty”.

Ahead of the hearing, committee head Representative Maxine Waters said in a statement that they will take a hard look at the hedge fund industry’s “long history of predatory conduct”. The committee will also examine Robinhood’s decision to halt trading of GameStop and other “meme stocks”.

• GameStop: How a fight between Reddit users and Wall Street saw video game store’s stock increase tenfold
• Hedge funds and short-selling: How and why GameStop shook the stock market

[18 February 2021 18:03 · Oliver O'Connell]

Question time

[18 February 2021 18:07 · Oliver O'Connell]

Rep McHenry asks Tenev what happened during the week of 24 January when Robinhood decided to halt customers’ ability to buy GameStop stock. Why restrict buying and not selling side?

Tenev said that preventing buying “was driven by deposit and collateral requirements imposed by our clearinghouses.”

He added that forbidding selling would stop people having access to their money.

[18 February 2021 18:10 · Oliver O'Connell]

Rep Carolyn Maloney points out that there was confusion and anger at Robinhood because retail customers found that they were being treated differently to other investors.

A blog post on the website said that trading was stopped due to volatility and did not mention clearinghouse requirements.

[18 February 2021 18:12 · Oliver O'Connell]

Most questions are directed at Robinhood’s Tenev.

[18 February 2021 18:16 · Oliver O'Connell]

Rep Brad Sherman likens Robinhood’s model to Facebook — when you’re not paying for a product, you’re the product being sold.

[18 February 2021 18:23 · Oliver O'Connell]

Payment For Order Flow

In case you are wondering about what Payment for order flow (PFOF) is, this involves rerouting trades carried out on one platform to a third party to execute for a small fee.

Robinhood makes the majority of its revenue this way, and some critics argue that’s not in the best interest of its customers. 

[18 February 2021 18:24 · Oliver O'Connell]

Zoom problems

This was odd.

[18 February 2021 18:41 · Oliver O'Connell]

Accusations of political theatre

After an accusation that the purpose of the hearing was political theatre by Rep Bill Huizenga, chair Maxine Waters chastised him reminding members not to impugn the motives of fellow members.

[18 February 2021 18:42 · Oliver O'Connell]

Roaring Kitty still keen on GameStop

[18 February 2021 18:45 · Oliver O'Connell]

Rep Carolyn Maloney said Robinhood used “vague language” with the apparent intention to “reserve the right to make up the rules as you go along.”

This is an accusation levelled at the company by many members with GameStop stock at the end of January.