WASHINGTON – Key players in the GameStop saga faced questions Thursday from House lawmakers concerned that even as investing becomes more democratized the scales are still tilted in favor of the big Wall Street institutions.
GameStop shares soared 17-fold in January before retreating sharply. The drama entangled huge short-selling hedge funds, a social media message board and ordinary investors wanting in on the hottest new trade.
Some of the toughest questions and harshest criticism was directed at Vlad Tenev, CEO of Robinhood, which operates an online trading platform that is popular with individual investors.
Tenev defended Robinhood against allegations that trading restrictions it put in place at the height of the GameStop frenzy disadvantaged those smaller investors in favor of bigger institutional clients.
The head of the House Financial Services Committee, Rep. Maxine Waters, D-Calif., brusquely grilled Tenev on those restrictions. She also asked Tenev about Robinhood's close relationship with Citadel Securities, which she maintains poses a conflict of interest.
At issue is the common practice in the securities markets of payment for order flow, in which Wall Street trading firms such as Citadel Securities pay companies such as Robinhood to send them their customers' orders for execution. In addition, platforms such as Robinhood give the trading firms data on stocks its users are buying and selling.
Both Tenev and Ken Griffin, the CEO of Citadel, denied that Citadel had any role in Robinhood's decision to restrict trading in GameStop and some other volatile stocks.
Tenev said Robinhood imposed the trading restrictions solely to meet capital requirements set by regulators. Still, he apologized to Robinhood customers.
“Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us. To our customers, I apologize, and please know we are doing everything we can to make sure this can't happen again.”
The panel's senior Republican, Rep. Patrick McHenry of North Carolina, put forward conservatives' view that the GameStop episode shouldn't be used by Washington to bring new regulations on the markets.
GameStop shares rose as high as $483 in January but reversed course this month and now trade around $45, still more than double where they traded at the start of the year.