(ATF) A US Congressional inquest into recent volatility in GameStop and other stocks popular with retail investors gave politicians a wider audience than usual for a committee hearing. Representative Lee Zeldin, a Republican backer of former president Trump, took the opportunity to attack Chinese-owned broker Webull and warn about dangers of online brokers with potential links to China's Communist Party.
Robinhood founder Vlad Tenev and Citadel CEO Ken Griffin fielded the majority of questions by lawmakers on the House of Representatives financial services committee, which spent more than five hours on Thursday 18 February addressing the GameStop retail trading frenzy in late January.
“Robinhood owns what happened and we need to make sure it doesn’t happen again,” said Robinhood CEO Tenev, referring to disruption caused by trading limits.
Robinhood and other trading apps drew fire for restricting trades in GameStop a day after the stock price more than doubled. Robinhood said the limits on buying certain stocks were needed because massive volatility prompted its clearing house NSCC to call for billions of dollars in extra collateral.
Tenev admitted on Thursday that the company would not have been immediately able to meet a $3 billion capital call from its clearing house on January 28, though he continued to frame a successful move at the time to raise $3.4 billion from investors as a step to cover future potential collateral needs.
Many lawmakers questioned if online trading platforms were siding with hedge funds over retail investors, which was denied by Tenev and Griffin, with the chief executive of hedge fund Citadel and majority owner of Citadel Securities stating that neither he nor any of his employees put pressure on Robinhood to suspend retail buying of GameStop shares.
Representative Lee Zeldin, a loyal backer of former president Trump, took the opportunity to warn that some online trading app competitors to Robinhood, such as Webull, could be required to share data with the Chinese Communist Party, repeating an attack line that will still be pushed by Republican politicians, even though Trump is now out of office.
Webull boasted that it saw a massive increase in customer flows after Robinhood suspended buying (though not selling) of highly volatile shares including GameStop at the end of January.
Webull was temporarily the second most popular iPhone app in the US due to this flow – after Robinhood at that time.
Webull recently reportedly it raised $150 million in a private funding round that values the firm at $1 billion. The company was founded by former Alibaba executive Wang Anquan and is majority Chinese-owned, though its chief executive Anthony Denier is based in New York.
'Need to watch China-based brokers'
Robinhood chief executive Tenev seemed to take a cue from Zeldin’s attack line and later in the hearings made his own reference to the need to monitor the activity of “Chinese-based brokerages”.
Griffin received numerous questions about the role of Citadel Securities as the dominant US equity market maker and how it handles payments for order flows to brokers such as Robinhood.
Melvin Capital CEO Gabriel Plotkin – who suffered huge losses as retail investors attacked his firm’s short positions – and Reddit CEO Steve Huffman also appeared, along with Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty.
“A few things I am not. I am not a cat. I am not an institutional investor, nor am I a hedge fund,” Gill said, adding that he is still enthusiastic about GameStop stock.
“I am just an individual whose investment in GameStop and posts on social media were based upon my own research and analysis,” he said.
Huffman was asked about the role of social media platforms in potential market manipulation.
“We spend a lot of time at Reddit ensuring the authenticity of our platform... And in this specific case, we did not see any signs of manipulation,” he said.
Gill and Plotkin repeated their competing investment theses on GameStop, with Plotkin arguing that due to the rise of digital downloads, the video game bricks-and-mortar business model has “structural challenges.”
Gill’s optimism at the hearing at one point gave a boost to GameStop’s stock price, which has been trading just under $50 this week – well off its high of $483 in late January but still up over 100% on the year.
Late selling resumed as the hearing rumbled on, however, and GameStop closed the day down by 11.4% at just over $40.
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