BlocksInform
Vlad Tenev, Robinhood’s CEO, very much occupied the hot seat in today’s hearing before the House Financial Services Committee over January’s market volatility.
None of the representatives seemed particularly interested in shaking up Reddit CEO Steve Huffman, and many seemed to consider Keith Gill much like we did.
These aren’t the market manipulators you are looking for
Gill, in all fairness, was the most likeable character involved, introducing his remarks by saying “A few things I am not: I am not a cat and I am not an accredited investor.” Gill, who posted about his GameStop investment in June 2019, even reiterated his opinion that GME remains an excellent buy today, based on current market prices. This is despite the fact that wild GME trading has attracted criminal investigation.
This lack of scrutiny of Gill and Huffman eases widespread fears that the events surrounding GameStop's explosive stock trading in January would prompt probes into the influence of social media platforms on market manipulation.
This is even as the House Antitrust Subcommittee announced today more hearings to scrutinize the biggest players in social media. For now, Reddit appears to be largely unnoticed.
“I was hopeful right out of the gate, because early on in the news cycle AOC argued for the Reddit users, saying they should be able to trade.” According to Congressman Warren Davidson, a member of the committee: And then Ted Cruz, on the other end of the political spectrum said, ‘well, we agree.’”
Tenev’s business model
Generally speaking, Democratic lawmakers were harsher toward Robinhood than Republicans regarding the firm’s controversial clamp down on buying certain high-volatility stocks, and Tenev had many questions.
The nature of Robinhood’s revenue model, which is based on the sale of order flow, while advertising itself as commission-free, fell under mass scrutiny, as did it’s dependence on a $3 billion injection of capital to meet collateral requirements.
Congressman Anthony Gonzales told Tenev during his questioning that there appears to have been a vulnerability in Tenev's business model. “We just can’t live in a world where my constituents can have their shares liquidated if you can’t make a capital call.”
Many called out Robinhood’s claims to be busy democratizing finance. He regularly urged that Robinhood users earn $35 billion, even though Rep. Jim Himes remarked that the figure is “meaningless without a rate-of-return.”
The hearing today revealed a lot of hostility towards The presentation wasn't all that educational, Tenev.
Chairwoman Maxine Waters warned that this will not be political theater, but there didn’t seem to be any concerted effort to solve the epic trading that fueled GameStop’s meteoric rise last month.
Is real-time solution possible?
Tenev and Davidson suggested that the U.S. might not have experienced the crisis if it had traded on the day of, instead of on the second. Tenev mentions the following. “The existing 2-day period to settle trades exposes investors and the system to risk.”
Kenneth Griffin, CEO of Citadel, which he described as “the largest market maker in the world,” disputed the likelihood of a real-time system for securities trading in the next several years, saying: Everything has to be perfect. He noted that real-time trading requires “perfect synchronization” of the workflow across the parties. Davidson disagreed, saying “Clearly in your business the technology exists for trading firms that are engaged in high-frequency trading.”
Davidson noted the potential role of blockchain. The potential of security tokens to solve issues with intermediaries and brokers has been one of the long-promised benefits of blockchain, though that is changing.
Despite the hearing's accomplishments to date, Chairwoman Waters stressed the importance of the work ahead. According to her, the committee plans on having two additional hearings with various witnesses.
