Hedge funds, Robinhood face grilling by Congress over GameStop Reddit rally (updated)

Citadel Income Fund

18/02/2021 14:49

(Adds Waters comment from Jan. 28, market manipulation context)
    By Pete Schroeder and Michelle Price
    WASHINGTON, Feb 18 (Reuters) - Wall Street hedge fund
managers, the chief executives of Robinhood and Reddit, and a
YouTube streamer known as Roaring Kitty face a grilling on
Thursday afternoon from U.S. lawmakers over the Reddit rally in
shares of GameStop Corp  GME.N . 
    Some of Wall Street's most powerful players, including
billionaire Republican mega-donor and Citadel CEO Ken Griffin,
will make rare public statements about their businesses during
the congressional hearing on how Reddit users trading on retail
platforms banded together to squeeze hedge funds that had bet
against shares of the video game retailer and other companies.  
    Griffin will appear before the Democratic-led House finance
panel alongside Robinhood CEO Vlad  Tenev, Melvin Capital CEO
Gabriel  Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a
Reddit user and YouTube streamer known as Roaring Kitty who
promoted his investment in GameStop. 
    The five men have been at the center of the saga, which 
roiled Wall Street in January prompting probes by several
federal and state agencies.  urn:newsml:reuters.com:*:nL4N2KL302
    With Wall Street critic Representative Maxine Waters at the
helm and Alexandria Ocasio-Cortez and other progressives on the
54-member panel, the hearing promises to be fiery, with tough
questions for Tenev, Griffin and  Plotkin in particular. 
    "Once or twice a year a hearing lends itself to good theater
... Thursday's hearing is one of those rarities," wrote Ian Katz
at Alpha Partners in Washington, adding the hedge fund moguls
are likely to be top targets for Democrats.  
    A spokesman for Waters declined to comment ahead of the
hearing, but in a statement published on Jan. 28 Waters made it
clear hedge funds were in her crosshairs.
    "We must deal with the hedge funds whose unethical conduct
directly led to the recent market volatility and we must examine
the market in general and how it has been manipulated by hedge
funds and their financial partners to benefit themselves.” 
    In prepared testimony published on Wednesday, the witnesses
generally acknowledged the GameStop saga was unprecedented, but
they all said there was no foul play on their part.  urn:newsml:reuters.com:*:nL4N2KN3PN

     
    
    The Reddit rally drove massive volatility in GameStop and
other shares, prompting the post-trade “clearing” houses that
guarantee trades to call for billions of dollars in extra
collateral from Robinhood and other retail trading platforms. 
    In response, many suspended buying in the affected stocks on
Jan. 28. Lawmakers from both parties were outraged and 
questioned if the trading platforms were siding with the hedge
funds over Mom and Pop investors.
 urn:newsml:reuters.com:*:nL1N2KG1L9 urn:newsml:reuters.com:*:nL1N2KG2CJ urn:newsml:reuters.com:*:nL1N2K421B
    New York-based Melvin Capital, one of several hedge funds
that had bet GameStop's shares would tumble, suffered massive
losses as the stock soared leading up to Jan. 28. Citadel made a
$2 billion investment in Melvin on Jan. 25.  urn:newsml:reuters.com:*:nL1N2KM064
    Lawmakers will likely focus on whether Robinhood made it too
easy for small investors to take risks, said analysts. Its
commercial arrangements with market makers to which it routes
orders may also be a hot topic, they said, as well as whether
that "payment for order flow" model may disadvantage customers. 
    Robinhood says few of its customers engage in risky trades,
while "payment for order flow" often helps customers get better
prices than trading on a stock exchange.
    Tenev, Griffin and Plotkin are likely to be grilled on short
selling, and whether Robinhood's decision to suspend buying in
the affected stocks was influenced by Citadel or Griffin, who
majority-owns Citadel Securities, a Robinhood market maker.
     All parties have denied any attempt by Citadel or Citadel
Securities to influence Robinhood's policies.
    Gill and Huffman are expected to field questions on the role
of social media platforms in potential market manipulation. 
    Yet long-term legislative action is unlikely once the
fireworks dissipate, said Isaac Boltansky, director of policy
research at Washington-based Compass Point Research & Trading.
    "We doubt that Washington can advance an acute policy
prescription when broader concerns regarding equity market
structure and economic equality complicate the conversation."

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GameStop's rise and fall GameStop's rise and fall    https://tmsnrt.rs/37kiLaY
GameStop comments soared on Reddit's Wallstreetbets    https://tmsnrt.rs/3dmQ7tw
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 (Reporting by Michelle Price and Pete Schroeder; Editing by
David Gregorio and Steve Orlofsky)
 ((michelle.price@thomsonreuters.com; +12026041711; Twitter:
@michelleprice36;))