Recent spike in retail trading giving new investors, companies more opportunities: TMX Group CEO
House Financial Services Committee Chairwoman Maxine Waters pledged to dig into conflicts of interest in the stock market and said the wild swings in GameStop shares have put a spotlight on Wall Street and “the predatory ways” of some hedge funds.
“Many Americans feel that the system is stacked against them and no matter what Wall Street always wins,” said Waters, a California Democrat.
The panel is holding the hearing to get to the bottom of one of the wildest periods for the U.S. stock market in recent memory. A confluence of events -- retail investors banding together on Reddit message boards to drive stocks to astronomical levels, hedge fund short-sellers getting hammered with losses and Robinhood Markets and other brokerages temporarily halting the rally -- gripped the attention of Wall Street and Washington last month.
The saga triggered questions about the fairness of markets and whether stock prices becoming detached from reality posed a threat to financial stability. The proceedings are the first chance for many lawmakers to grill the four executives at the heart of the controversy -- Vlad Tenev of Robinhood, Ken Griffin of Citadel, Gabe Plotkin of Melvin Capital and Steve Huffman of Reddit. But the drama may be blunted by the need to hold the hearing virtually due to the coronavirus pandemic.
For House members, the likely hours of testimony may be more about scoring political points against Wall Street titans than drilling down into the minutiae of the stock market. That’s because getting a major policy response through a bitterly divided Congress is extremely unlikely.
Still, some issues are certain to gain attention at regulatory agencies like the Securities and Exchange Commission. That includes potential additional protections for the millennial investors who have been drawn to Robinhood because of its commission-free trades and easy to use mobile phone app that some liken to a video game. The SEC and the Justice Department are also investigating whether any traders illegally manipulated the prices of GameStop and other stocks.
Many of Financial Services Committee members have made clear that they’re siding with the small investors who pushed GameStop to record highs, despite concerns raised by ex-regulators and some finance executives that the wild trading exposed those fueling the surge to potentially crippling losses. A point frequently made is that GameStop’s jump to as high as US$483 last month had no basis in the unprofitable video-game retailer’s business prospects, and it has since plunged to US$43.66.