A Congressional hearing will try to explain everything about the GameStop stock roller coaster.
Getty Images
GameStop’s stock price skyrocketed in late January as traders in the r / WallStreetBets The Reddit community has contracted Wall Street hedge funds who bet that the video game retailer would fail. GameStop shares jumped briefly to more than 14,300%, and since then collapsed. Market volatility caught the attention of legislators in Congress, and now lawmakers are on a fact-finding mission to find out what happened.
Is the Chamber’s Financial Services Committee holding a virtual hearing, entitled Game Stopped? Who wins and loses when short sellers, social media and retail investors come into conflict. Reddit’s chief executives, Robinhood, Citadel and Melvin Capital are present, along with the Reddit poster that led the GameStop shopping frenzy and is now accused of market manipulation.
One aspect of the world of commerce highlighted by this incident is the opacity of the entire process, from how the trades are settled to how Robinhood and other brokers are able to offer trades without fees. Several lawmakers also questioned Robinhood CEO Vlad Tenev about why the company had to restrict the purchase of GameStop stock in the middle of its wild run, a move that angered its users and turned the Reddit community against it.
Tenev apologized for the move and said Robinhood had secured more capital to ensure that those restrictions did not happen again. He also noted that there was a 3.5 million chance of a GameStop situation happening, calling it a “Black Swan event”.
Another major theme of the session is whether sophisticated trading mechanisms, such as short selling, are appropriate for individual investors, and whether Robinhood’s drive to democratize trading for the public has been harmful or beneficial. House committee members repeatedly mentioned Alex Kearns, a 20-year-old man who committed suicide after racking up about $ 730,000 in commercial losses on the app. His family is suing Robinhood.
The line of questioning suggests that at least some lawmakers will examine the financial technology industry and even move to introduce legislation that further regulates the industry, although Republican committee members noted that the overall market response was appropriate and rejected the need new regulations.
There is also confirmation from Reddit trader Keith Gill, also known as “RoaringKitty” on the social network that, in fact, is not a cat.
On a more serious note, Gill noted that Reddit, YouTube and Twitter are helping retail investors, who lack the kind of research resources that large investment firms have.
“It is alarming how little we know about the internal workings of the market,” he said in his opening statement.
The hearing is in progress. See how to attend the session and some basic information about what led Congress to get involved.
When is the audience?
The Chamber’s Financial Services Commission will hold the hearing on Thursday, February 18, at 9 am PT / 12 pm ET.
Where can I attend the hearing?
CNET will broadcast the audience on our YouTube channel.
The live broadcast will be available on the House Committee on Financial Services YouTube channel. C-Span will also hold the hearing.
Why is there an audience?
During the week of January 25, GameStop and other “meme” actions saw its stock price rise suddenly and dramatically. Receiving the credit was a group of traders on the subreddit r / WallStreetBets. Those who bought shares in the video game retailer early were making big returns.
On January 28, the popular trading app Robinhood said that stop any GameStop purchase and other “meme” actions, although it allowed the shares to be traded again the next day. The change provoked a rapid reaction from customers and legislators.
Several members of Congress, including Congresswoman Alexandria Ocasio-Cortez, Congresswoman Rashida Tlaib and Senator Ted Cruz, called a hearing on Robinhood’s actions. On February 3, Congresswoman Maxine Waters, a California Democrat and chairman of the House’s Financial Services Committee, said Cheddar there would be a hearing to find out what happened.
“Addressing this predatory and manipulative conduct is the responsibility of the legislators and securities regulators charged with protecting investors and ensuring that our capital markets are fair, orderly and efficient,” Waters said in a January 28 statement. “As a first step towards curbing these abusive practices, I will convene an audience to examine recent activity around GameStop shares and other impacted actions focusing on short selling, online trading platforms, gamification and their systemic impact on our markets. of capital and retail investors. “
Who will be in the audience?
The list of witnesses includes CEOs of the companies that managed the negotiations, as well as the Reddit broker who led the GameStop buying spree.
Keith Gill is a post on the r / WallStreetBets stock trading subreddit and runs the Roaring Kitty channel on YouTube. In September 2019, he started posting monthly updates to GME YOLO reflecting his certainty that GameStop’s shares were undervalued. He is seen as a hero on the subreddit for starting the GameStop shopping spree, but his posts and videos have caught the attention of the House committee and regulators. Massachusetts regulators sent Gill a subpoena on February 8 to answer questions about his business activity, according to the Boston Globe. Gill was also processed for stock manipulation.
“I did not ask anyone to buy or sell the shares for my own profit,” he said in a written statement published on Wednesday. “I didn’t belong to any group that was trying to create movements in the share price. I never had a financial relationship with any hedge fund. I had no information about GameStop except what was public. I didn’t know anyone inside the company, and I never spoke to anyone from the inside. “
Steve Huffman is co-founder and CEO of Reddit. The subreddit r / WallStreetBets was the seat of all memes trading and has grown to more than nine million subscribers.
Vlad Tenev is the CEO of Robinhood, the popular investment app used by many people who participated in the shopping frenzy. On January 28, your company tweeted that it would not allow any users buy GameStop, AMC or other “meme” actions. This caused a setback and questions arose as to why this happened. Tenev gave several interviews over the next few days, but only after speaking with Tesla CEO Elon Musk, on the Clubhouse voice chat app, did he give more details about what happened. Tenev said regulators had informed his company that it would need to have $ 3 billion on hand as collateral for the negotiations. As it had no money, the investment app had to freeze the stock purchase until it secured more money to allow limited trading on January 29.
Kenneth Griffin and Gabriel Plotkin are the CEOs of hedge fund companies Citadel and Melvin Capital, respectively. In that case, Melvin Capital would be considered the opposition to r / WallStreetBets traders. The hedge fund expected GameStop’s stock price to continue to fall, so it started a short sale, which is essentially a bet that the stock will have a lower price sometime in the future. Due to Reddit traders increasing the video game retailer’s stock price, Melvin lost 53% of its investments in January, which translates into billions of dollars. In a written testimony, Plotkin says his company “played absolutely no role” in the decision made by Robinhood and other trading platforms to suspend trading of GameStop shares and that Melvin Capital closed its position in the retailer’s stock days earlier. .
Citadel is an investor in Melvin Capital and helped it after last month’s heavy losses, although Plotkin says it was not a ransom in his written testimony. Robinhood also has connections with the Citadel. When users of the app buy shares in a company, Citadel pays Robinhood to fulfill those orders, in what is known as Payment Flow for Orders, or PFOF. This allows Robinhood to allow users to trade shares without having to pay any fees. There have been doubts as to whether this relationship was the reason for the halt to trading on January 28, although the hedge fund denies it.