The Committee on Financial Services of the United States House of Representatives has scheduled a hearing on “recent market volatility involving GameStop [Corporation (GME)] stock and other stocks.” The hearing will be held virtually, starting at 12 noon Eastern Time on Thursday, Feb. 18, 2021. Among those called to testify are Vladimir Tenev, CEO of online trading firm Robinhood Markets, Inc., and Steve Huffman, CEO and co-founder of social media community and online forum site Reddit.1
In addition to singling out hedge funds for criticism, it is likely that Robinhood CEO Vladimir Tenev will face hostile questioning about his company’s actions in the GameStop affair. In particular, the committee memorandum notes that payment for order flow (PFOF) has been Robinhood’s chief source of revenue since its inception and that its decision to restrict trading in GameStop and other stocks may have been influenced by its business ties to investment firms that were caught in short squeezes on these stocks.4
The committee memorandum also notes: “In December 2020, the SEC charged Robinhood with making misstatements about the firm’s receipt of payment for order flow and for failing to comply with its duty to ensure that customer trades were executed on the best possible terms. Robinhood’s failure to satisfy its best execution obligations resulted in more than $34 million in aggregate customer losses. Robinhood was censured and agreed to pay $65 million to settle the action.”
Author(s): MARK KOLAKOWSKI
Publication Date: 17 February 2021
Publication Site: Investopedia
As you know, Congress oversees the bureaucracy. It’s agencies, the unelected bureaucrats that make a lot of the regulations that affect our lives. Colloquially, you might know this as a part of The Deep State. The Senate Banking Committee and the House Financial Services Committee oversee the Securities and Exchange Commission (SEC).
The GameStop saga has laid a lot of things bare. But one thing that needs pointing out is that most of the people on those committees have no clue how the entire financial system as it pertains to exchanges and markets works. I am not impugning the personal characters of the Senators and House members on the committees. In 99.9% of the cases they are decent and intelligent people. What I am saying is most of them have no clue when it comes to understanding the industry they are charged with overseeing. It is rare when you find an elected official that really and truly understands. Not rare like a four leaf clover rare. Rare like seeing a tiger in the wild rare.
I am not talking about trading markets either as plenty of elected congresspeople seem to know how a brokerage account works. I am talking about understanding the mechanics and plumbing, and truly understanding.
Author(s): Jeffrey Carter
Publication Date: 31 January 2021
Publication Site: Points and Figures
One reason regulators might be stymied is a lack of political will to limit trading by small investors. When Robinhood temporarily blocked its customers from trading GameStop shares during the frenzy, a cry went up about market access. The big losses those little guys inflicted on some hedge funds by bidding up the stock was seen as a democratization of the market. Any effort to derail that could be criticized as protection for Wall Street.
“Most people believe that middle-class people, working people, should be able to take their chances on the stock market,” Rep. Maxine Waters (D., Calif.), who leads the House Financial Services Committee, said in an interview.
The consensus among regulators so far is that the episode didn’t expose major problems with the market’s plumbing. The Treasury Department said Thursday that regulators believe the market’s “core infrastructure was resilient.” The department said the SEC is reviewing “whether trading practices are consistent with investor protection and fair and efficient markets,” and is expected to release a report on the factors that influenced it.
Author(s): Paul Kiernan and Dave Michaels
Publication Date: 7 February 2021
Publication Site: Wall Street Journal