Released by Chairwoman Maxine Waters, D-Calif, in her statement, it said that Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit CEO and co-founder Steve Huffman, Citadel CEO Kenneth Griffin and Keith Gill, also known as Roaring Kitty, attended a hearing before the U.S. House Financial Services Committee on Thursday at 12 p.m. ET to testify for the evidence.
In an announcement with CNBC JMP Securities analyst Devin Ryan shared his opinion about how the Congressional hearing would concentrate on identifying precisely what happened during the week of service disruptions, ensuring that all activities were acceptable and also deciding the suitable method to prevent a potential situation in the future.
A lot of interest from the emerging class of institutional investors on social media channels was attracted to an extraordinary quick squeeze in the stock last month of GameStop and this event also shocked Wall Street. The share price of GameStop used to reach a high record of $483 per share, but losing 90 percent of its worth afterward.
The main plot centered around a situation where Wall Street became the object to be against by a group of Reddit-inspired smaller retailers who together entered into an alliance, pushing professional hedge fund managers to a short squeeze, they also forced those managers to pay their negative bets or face the possibility of severe damages. Nevertheless, several results demonstrate that the causes behind the upward price action turned out retail investors.
In Tenev’s testimony, he mentioned the additional capital requirements from the Depository Trust and Clearing Corp., an agency with the responsibility of transaction settlement and clearance, and of trading constraints. In a couple of days, the brokerage lifted an investment fund of over $3.4 billion to solidify its balance sheet and withdraw certain constraints.
After suffering a big loss as a goal of the army of institutional investors, Hedge Fund Melvin Capital shut down its short position in GameStop. Plotkin claimed GameStop’s short position was caused in the case that downloadable purchases from the internet were dominating the physical video game store.
Citadel’s Hedge Fund Arm, as well as Point72, invested nearly $3 billion into Melvin to support its finances. The hedge fund of Citadel should not be mistaken with Citadel Shares, a company that was working to conduct trades with Robinhood.
The issues of the hearing relatively aimed at the alliance between three subjects Citadel and Robinhood and Melvin Capital, and the reason for the case that brokerages stopped trading and how to secure institutional investors.
What’s Robinhood’s Behaviour
The hearing on Thursday is a significant moment for Robinhood leader Tenev, who is supposed to be at the forefront later this year during the business’s initial public offering.
In the testimony, Tenev said that he wanted to be transparent from the beginning to the end: any argument that Robinhood behaved to support hedge funds or other special interests to the disadvantage of their clients was utterly baseless and market-distorting language.
During GameStop mania, a two-day trade settlement, known as T+2 was accused of some of the clearinghouse deposit problems by Tenev. Settlement happens two working days from the day the order is executed for most retail equity trades that pass through a broker and then a clearinghouse.
Tenev’s testimony mentioned that the current two-day duration to settle transactions leads customers and the business to needless risks and was ready for reform. The criteria for clearinghouse deposits are meant to reduce risks, but the wild market behavior of last week shows that these requirements, combined with an unnecessarily long transaction time, could have unforeseen effects that add new risks.
On Thursday, Michael Dyson, former general adviser for the Financial Industry Regulatory Authority, informed CNBC that T+2 was actually a “low hanging fruit.” for Tenev. Finra is a self-regulatory body regulating brokerage companies and their licensed officers.
Although Tenev might divert criticism during the Q&A section of the hearing in the middle of his campaign for real-time settlement, the CEO had acknowledged several responsibilities during the trading mania.
Tenev shared that right the time when those emails were sent, many plots appeared which led to the ringing continuously with, ‘how could you do this, how could you be on the side of the hedge funds?’
As the report of Punchbowl News, Reginald Brown was known to be employed by the brokerage company. He is an experienced attorney investigating parliament and is famous for preparing for Mark Zuckerberg, CEO, and founder of Facebook, on Congressional testimony.
There is no comment from Robinhood to answer the asking of CNBC.
The thing to anticipate from lawmakers
There are many negative comments by Washington for the controversy involving GameStop Corp.
However, there is no certainty yet for the regulation of the legislators. It can be Robinhood and Charles Schwab which play the role of brokerages, retail speculators on social media, market producers like Citadel, or investment funds.
An inveterate critic of Wall Stress Sen. Elizabeth Warren (D-Mass.) is appealing for a right to a fair trial for the customer when the false comes from the manufacturer.
In a testimony, Warren said that Robinhood had promised to adjust the market in a more equal way. However, it didn’t reveal the data related to the privilege to alter the laws to end a contract without notice and the information that the customer cannot file a lawsuit even when there are problems.
In a testimony, Khanna shared that the period of uncontrolled speculation needs to be stopped due to the irrationality of investors: the big investors only focus on making a lot of profit while smaller investors are bound by another set of rules that clearly benefit the super-rich.
In the talk to CNBC, Rep. James Comer (R-Ky.) showed his satisfaction with the development of Robinhood, which creating fair competition for retail investors. Nevertheless, the selection to suspend the transaction made him dissatisfied.
On “The Exchange” of CNBC, Rep. French Hill (R-Ark.) share the preference to dig deeper into the reason for the difficulty in the funding of Robinhood in the chaotic GameStop period.
On “The Exchange” of CNBC on Wednesday, Rep. Brad Sherman (D-Calif.) said that he was not interested in day trading because he thought that it was unattractive. He advised not to buy GameStop on Robinhood when you want to have an attractive video interface.
JMP Securities want to question the dubious, yet the valid way that brokerage firms including Robinhood earn even when reducing commission: payment for order flow.
Tenev shared that in 2019, besides Robinhood, Charles Schwab, E*Trade, and TD Ameritrade also had serious remarks on payment for order flow. Frequently, Robinhood Securities give the assessment about partners and passes on client orders to market makers who can provide the best execution quality for those orders.
According to Waters’s share with CNBC, there will be three hearings. The first session talked about the roles of each side, the second with the experts, and the third to try to draw some solutions.
Reddit & Roaring Kitty
Reddit’s CEO will likely be forced to answer the question about the ability to manipulate the market and likely face questions about the possibility of market manipulation and hostile language on the WallStreetBets site, which was flooded with posts about GameStop in the short term.
Gill, who is famous for “DeepF—ingValue” on Reddit’s WallStreetBets forum and Roaring Kitty on YouTube, said that he was just a private investor to act based on public information to resist the allegations of fluctuating GameStop shares on the statement on Wednesday.
In the statement, he claimed that his investment in GameStop and the posts were made on his own personal finance. He did not belong to any associations which try to fluctuate the stock market.
The latest information from Gill’s account on Reddit showed that he has earned $7.8 million off of GameStop, which is double his investment for GameStop.
Gill commented that “GameStop’s stock price may have gotten a bit ahead of itself last month, but I’m as bullish as I’ve ever been on a potential turnaround. In short, I like the stock.”
While Gill said he was not a stockbroker or financial investment advisor, there was a lawsuit against Gill in federal court in Massachusetts over pretending to be a novice despite being a licensed professional.