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 18:56 · Oliver O'Connell]

Concern about social media moving markets more than legitimate information

Some interesting questions from Rep David Scott.

He asked Tenev if Robinhood has any measures in place to ensure investors make trades based on legitimate material financial information and not the influence of social media or unverified information?

Could you have a verification process on a stock trading platform?

Tenev responded that there is investor education information on the site.

For the social media angle, Mr Scott asks Reddit’s Huffman who reiterates that they detected no signs of manipulation.

Mr Scott is concerned that social media posts do more to move the market than legitimate information.

[18 February 2021 19:17 · Oliver O'Connell]

Rep Josh Gottheimer appeared on CNBC this morning and is also concerned about the role of social media in providing information to everyday investors.

[18 February 2021 19:40 · Oliver O'Connell]

The value of GameStop investments

After a short recess, the hearing returned with Rep Ed Purlmutter asking about when Mr Gill (Roaring Kitty) and Melvin Capital’s Mr Plotkin took their respective positions in Gamestop.

Mr Gill said he took his position in June 2019 and thought it could go far and was undervalued.

Mr Plotkin responded that Melvin took a short positioning GameStop in 2014 around the time the fund was founded. He believed the stock was overvalued then.

[18 February 2021 19:53 · Oliver O'Connell]

What is the rate of return of Robinhood users?

Tenev was evasive in his response.

[18 February 2021 20:18 · Oliver O'Connell]

Rep Juan Vargas apologised to Mr Plotkin that members of the public made antisemitic attacks against him online, relating to driving up the share price of GameStop.

[18 February 2021 20:21 · Oliver O'Connell]

Mr Vargas also asked if Mr Griffin at Citadel if anyone at his company had spoken with anyone at Robinhood about imposing restrictions on users regarding buying shares of GameStop.

Mr Griffin responded: “Absolutely not.”

[18 February 2021 20:40 · Oliver O'Connell]

Questions to Reddit CEO

Asked how they know if users are real people, Mr Huffman says that users on Reddit “should be masters of their own identity” and that subreddits such as WallStreetBets wouldn’t work were people forced to use their real full identities.

He adds that WallStreetBets is “an eccentric community, but they’re well within the bounds of our content policy.”

[18 February 2021 20:44 · Oliver O'Connell]

More monitoring of social media by Wall Street

Gabe Plotkin of Melvin Capital agrees with the idea that going forward Wall St firms will pay a lot more attention to the message boards and chatter on social media.

“I think there’ll be a lot closer monitoring of message boards ... we have a data science team they’ll be looking at that,” he says.

[18 February 2021 21:00 · Oliver O'Connell]

Was there a liquidity problem at Robinhood?

Rep Anthony Gonzalez asked Tenev if Robinhood had the liquidity to cover the $3bn needed at 5am on the morning of the GameStop debacle.

Tenev said: "Robinhood’s security team had to work with their clearinghouses to meet their collateral requirement."

However, previously at the hearing, Tenev had said that there was no liquidity problem.

Mr Gonzalez stated that the company was “unprepared to protect his constituents and customers from non-consensual liquidation” and was “unprepared to sort out the three billion deposit requirement” and “barely avoided disaster”.

[18 February 2021 21:31 · Oliver O'Connell]

Where did the $3bn come from?

Further questioning from Rep San Nicolas of Guam (who has been online since 3am Friday morning his time) revealed that the $3bn came from venture capitalists.