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We didn't learn much new in today's hearing, but the spotlight was definitely on the gamified trading app, rather than the traders on r/WallStreetBets.
Vlad Tenev, Robinhoodâs CEO, very much occupied the hot seat in todayâs hearing before the House Financial Services Committee over Januaryâs market volatility.Â
None of the representatives seemed particularly interested in putting the screws to Reddit CEO Steve Huffman, and many seemed to give Keith Gill the same props the rest of us did.
These arenât the market manipulators you are looking for
Gill, in all fairness, was the most likeable character involved, introducing his remarks by saying âA few things I am not: I am not a cat and I am not an accredited investor.â Gill, who really started this chain of events by posting about his investment into GameStop in June 2019, even doubled down on his opinion that GME remains a good buy today, at current prices. This is despite the fact that wild GME trading has attracted criminal investigation.
That lack of scrutiny towards Gill and Huffman does much to quell widespread fear that the events surrounding explosive trading in GameStop (GME) shares at the end of January would kick off probes into social media platformsâ role in potential market manipulation.
This is even as the House Antitrust Subcommittee announced today more hearings to scrutinize the biggest players in social media. Reddit, for now, seems to have flown under the radar.
Congressman Warren Davidson, who sits on the committee, noted this rare area of consensus, telling Cointelegraph: âI was hopeful right out of the gate because early on in the news cycle AOC was sticking up for the Reddit users, saying these people should have a right to trade. And then Ted Cruz, on the other end of the political spectrum said, âwell, we agree.ââ
Tenevâs business model
Though broadly, Republicans were more lenient than Democrats in addressing Robinhoodâs activity, and especially the firmâs controversial shut-off of buying but not selling of GME and other high-volatility stocks, everybody wanted answers from Tenev.
The nature of Robinhoodâs revenue model, which is based on the sale of order flow, while advertising itself as commission-free, fell under mass scrutiny, as did itâs dependence on a $3 billion injection of capital to meet collateral requirements.
âI believe a vulnerability was clearly exposed in your business model,â said Congressman Anthony Gonzales while questioning Tenev. âWe just canât live in a world where my constituents can have their shares liquidated if you canât make a capital call.â
Many called out Robinhoodâs claims to be busy democratizing finance. Tenev consistently pushed the figure of $35 billion as Robinhood usersâ total gains, which Rep. Jim Himes said âyou and anybody else schooled in finance know is meaningless without a rate-of-return.â
But while todayâs hearing revealed a lot of hostility towards Tenev, it wasnât all that educational.
Despite Chairwoman Maxine Watersâ admonition that âThis is not political theater at all,â there didnât seem to be any concerted sense of solutions to the epic trading that fueled GameStopâs (GME) meteoric rise at the end of January.
Real-time solution?
Some proposals, including from Tenev himself, as well as Davidson, were that the situation would not have developed at all if the U.S. had trading that settled the day of, rather than two days later â termed T-0 rather than T-2. Tenev noted âThe existing 2-day period to settle trades exposes investors and the system to risk.â
Kenneth Griffin, CEO of Citadel, which he described as âthe largest market maker in the world,â disputed the likelihood of a real-time system for securities trading in the next several years, saying: âThe issue is everything has to work perfectly.â Real-time trading, he said, ârequires that every bit of the workflow is perfectly synchronized across the parties.â Davidson disagreed, saying âClearly in your business the technology exists for trading firms that are engaged in high-frequency trading.â
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.
Todayâs hearing was just the beginning, Chairwoman Waters affirmed. She said the committee aimed to hold two more with different witnesses.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.