Short-selling under spotlight in GameStop hearing

Citadel Income Fund

19/02/2021 24:43

By John McCrank
    NEW YORK, Feb 18 (Reuters) - Short selling was under the
microscope on Thursday as a U.S. House committee grilled
executives from trading app Robinhood and hedge funds Melvin
Capital and Citadel over the GameStop Corp  GME.N  trading
frenzy, with some calling for change. 
    Shorting a stock is a bet that the share price will fall. 
    GameStop had around 140% short interest at its peak in
January, meaning more shares were shorted than the company had
outstanding.  urn:newsml:reuters.com:*:nL1N2KN2ZX
    "The ability for the same share to be shorted an indefinite
number of times is somewhat of a pathology and that should be
fixed," said Robinhood Chief Executive Officer Vlad Tenev.
    He called for a modernization of the market's infrastructure
so shares can properly be tracked once they've been loaned out
to be shorted, which does not currently happen.
    The GameStop saga could also dampen industry demand for
shorting stocks going forward, said Melvin's CEO Gabe Plotkin. 
    Melvin had been short GameStop since 2014. It suffered
massive losses as retail investors piled into GameStop in
January, driving its price up 1,400% and creating a
"short-squeeze," where short sellers were forced to buy the
shares back at a higher prices to close their positions, adding
to the upward pressure on the stock price.  urn:newsml:reuters.com:*:nL1N2KM064
    Citadel made a $2 billion investment in Melvin on Jan. 25,
which closed its GameStop position on Jan. 27. People familiar
with the fund said it lost almost 30% in the first three weeks
of January.  urn:newsml:reuters.com:*:nFWN2K20LX
    Citadel CEO Ken Griffin said of short-selling reforms that
as far as legislative priorities that could improve the markets
go, "this doesn't make the top 100 list."
    "The short interest in GameStop was exceptional and I'm not
sure it's worth us delving into legislative corrections for a
very unique situation in terms of the extreme sides of the short
interest," he said.

 (Reporting by John McCrank; Editing by Megan Davies and
Christopher Cushing)
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