For many of the panel’s members, the day was more about scoring political points against the most prominent firms involved in the controversy than drilling down into the minutia of the stock market. Republicans on the committee were happy to point that out.
Representative Bill Huizenga, a Michigan Republican, said the hearing was “political theater, for the most part.” He complained that some of his colleagues “were playing to the cameras.”
Republicans generally warned against solving the GameStop problem with new regulations. And, there is unlikely to be a major policy response coming from the committee’s review since getting legislation through the closely divided Congress will be near impossible.
New Rules?
Still, some issues are certain to gain attention at the Securities and Exchange Commission, which oversees markets. They include a look at why so many stocks trade off public exchanges, whether apps like Robinhood’s that seem like a video game should be more tightly regulated and if short sellers should boost disclosure of their bearish wagers. The SEC and the Justice Department are also investigating whether any traders illegally manipulated the prices of GameStop and other stocks.
Many of the committee members 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 price swings exposed those fueling the surge to potentially crippling losses. Experts noted that GameStop’s jump to as high as $483 last month was not grounded in financial analysis. Shares in the unprofitable video-game retailer closed at $40.69 in New York trading Thursday.
Representative Patrick McHenry, the committee’s top Republican, attributed the unusual trading to “a fundamental change” in markets, occurring as retail investors harness new technologies. What happened in January was partly the result of these traders being denied access to markets for years, he said.
While a few Democrats took the opportunity to bash hedge funds, Gabe Plotkin, whose Melvin Capital Management was hit with huge losses after betting against GameStop, faced few questions.
Swirling Conspiracies
Though conspiracy theories have swirled about whether faltering hedge funds demanded the late January trading stoppage, all the executives testifying said there was no truth to the story. “We don’t answer to hedge funds,” Tenev told the panel.
The Robinhood CEO explained that the firm was forced to halt the purchases in late January because it was forced to pony up more than $3 billion in extra capital. The number was later reduced but the broker needed to reach out to additional investors for the funds.
The focus on Citadel and Robinhood took some heat off of Roaring Kitty, a retail trader named Keith Gill who gained notoriety by posting a series of videos online urging investors to jump on the GameStop bandwagon. Gill insisted that he’s just a regular guy who believes in the video-game company, adding that he’s not a financial adviser and wasn’t part of any effort to manipulate share prices.
—With assistance from Daniel Avis.
This article was provided by Bloomberg News.