The big day has finally arrived.
Now that the hearing is over, readers who are so inclined can go back and watch all five hours of it here below:
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Update (1715ET): Roughly five hours after the start of Thursday’s “Gamestopped” Congressional hearing, AOC and Rashida Tlaib finally had their opportunity to speak (as the party continues to generally sideline the highly influential crypto-marxist “Squad” leader) as the two squad members slammed the witnesses, though one of their testimony – AOC’s – was much more engaging than the other.
While Tlaib’s question mostly focused on boilerplate about economic inequality and taxes, AOC went straight for Robinhood CEO Vlad Tenev’s throat, accusing him and Robinhood of failing to follow its own rules and risks (especially when it comes to margin requirements) while also suggesting that Robinhood has used “payment for order flow” to disguise the quiet costs consumers actually pay for the supposedly “free service.”
Citing an question asked earlier by another progressive colleague, AOC insisted that “Robinhood owes its customers a lot more than an apology…Mr. Tenev would you be willing to commit today to Voluntarily pass on the proceeds of payment for order flow for Robinhood customers?”
After a rambling response about how removing Payment for Orderflow would force the company to start charging commissions again, she finished Tenev off by accusing him of deliberately misleading customers with the ‘payment for order flow’ concept, claiming that Robinhood actually taxes its customers in other ways, poor execution being one example.
During his response, Tenev noted that, in the beginning, investors were skeptical whether the company’s zero-commission model could even work. But now, it has become the industry standard.
She also slammed the company for its frequent crashes and lapses in services, especially when volatility surges.
After AOC and a few more Witnesses, Chairowman Waters returned for her closing remarks, in which she blasted Ken Griffin and Citadel for helping to “fleece” retail day trading customers via its relationship with Robinhood, while also potentially representing a major “financial threat” to the whole system.
As the hearing comes to a close, here are what Bloomberg sees as the key takeaways from the epic hearing drama:
- This wasn’t a GameStop hearing, it was a Robinhood hearing. Most of the members directed their questions to Robinhood CEO Vlad Tenev. Tenev was pressed on his firm’s decision to restrict trading in GameStop and its use of payment for order flows to generate revenue.
- That being said, Keith Gill, the trader known as “Roaring Kitty,” still managed to prove his influence. He only spoke a few times but his comments appeared to be correlated to moves in GameStop, with the stock rising on his opening comments and at least one of his answers. GameStop ended the day 11% lower, underperforming the broader market.
- Citadel CEO Ken Griffin managed to escape largely unscathed, though some Democratic lawmakers such as Brad Sherman of California and Rashida Tlaib of Michigan pressed him on his firm’s practices and advantages in the market. Lawmakers didn’t spend much time on the role of social media platforms — namely Reddit — played in fueling the stock frenzy. Reddit CEO Steve Huffman hardly spoke a handful of sentences over the course of the five-hour hearing.
- Tenev revealed that Robinhood’s biggest revenue stream is order flow, telling lawmakers that more than 50% of his firm’s revenue is derived from that practice. The CEO admitted that Robinhood didn’t have the funds to meet the initial $3 billion demand for deposits from its main clearinghouse in the early hours of Jan. 28. After his firm restricted trading in certain stocks, the deposit call fell to $1.4 billion.
Source: Bloomberg
Meanwhile, Waters reaffirmed that she’s planning at least 2 more hearing to focus on how commission-free trading and payment for order flow impacts the market, with Maxine claiming that she feels traders are getting fleeced, while the system might pose a threat to the stability of markets. Representatives from regulators like the SEC, industry self-reuglator FINRA, the Depository Trust and Clearing Corp (aka the market’s main clearinghouse) and others will be called in the hearings, she said, along with many other guests who can speak to the issue, she said, before banging the gavel and adjourning the hearing.
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Update (1530ET): Rep. Vincente Gonzalez hit Griffin with a late but regardless still a solid question. The gist:: Gonzalez wanted to know how Citdal guarantees that its market making arm doesn’t allow any undue advantages to its hedge fund arm.
The conflict there is obvious, even though, as Griffing responded, Citadel owes a “duty of best execution” to every trade. Griffin mostly avoided the question, claiming he didn’t understand the premise since Citadel has nothing to do with “clearing” or DTCC.
We suspect, deep down, he knew better.
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Update (1500ET): Jim Himes, a Democrat from Connecticut who may have some of the most extensive experience with the financial services industry of anybody on the panel (he used to work for Goldman and even pronounces the word “finance” with a slight Midatlantic twist), compared Citadel to the “casino” in the WSB saga, and as most people know, the casino often wins.
The retail investor is known as “dumb money,” Himes says. “As much as I support the democratization of finance, we need to be thoughtful about this.” Himes added that he wants to know how much money retail traders lost trading GME and other “meme stocks” during their parabolic late-January explosion.
Earlier, other Democrats confronted Griffin and Tenev (who faced most of the questions) about the “payment for order flow” relationship and whether or not Robinhood’s customers could actually trust the firm for best execution. Many of these questions touched on sensitive topics, but Tenev and Griffin hewed to their official line and mostly avoided any unsavory answers.
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Update (1450ET): As the hearing nears the three-hour mark, Chairwoman Waters has said her committee will (ideally) have two more hearings on this subject. Meanwhile, here’s a BBG summary of the highlights from the past few hours.
- Lawmakers have mainly directed their questions to Vlad Tenev, the Robinhood CEO, wanting to know why trading was restricted and whether the company was pressured to restrict it by anyone.
- Keith Gill, the retail trader known as “Roaring Kitty,” only spoke a few times but his comments appeared to be correlated to moves in GameStop, with the stock rising on his opening comments and at least one of his answers.
- Citadel CEO Ken Griffin felt the heat from at least one lawmaker — Brad Sherman of California — who laced into him after receiving what he apparently felt was a non-response to one of his questions on execution quality.
Despite intense scrutiny from lawmakers, the hearing so far has failed to yield much, if any, new information as Griffin and Tenev have proven adroit at sticking to their talking points.
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Update (1310ET): As politicians dig in with questions, Robinhood’s Vlad Tenev offered excuses, like claiming the spike in GME shares and other “meme stocks” was a “five sigma” event. Meanwhile, Ken Griffin took a beating from one lawmaker, when the Citadel founder refused to say what might happen if Citadel receives two orders from Fidelity and Robinhood of roughly the same size – whose would get executed first? Griffin refused to offer a definitive answer to Rep Brad Sherman before later going to insist Citadel helps retail investors get better prices, despite representing essentially another intermediary.
Sherman got pretty heated with Griffin, chiding him with a “you are wasting my time” and interrupting him several times. But that exchange with the California Dem is about as testy as things have gotten so far.
Also remember, when it comes to Citadel and market makers handling retail order flow, it’s not “frontrunning”, it’s “price improvement.”
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Update (1245ET): The price of GME shares soared as ‘RoaringKitty’ delivered his prepared remarks…
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As we detailed earlier, several of the main players in the “Meme stock” trading frenzy saga – which infamously led to Robinhood and other digital brokerages halting orders related to certain securities, most notably GameStop, as prices soared – will sit for testimony before the House Financial Services Committee, led by Chairwoman Maxine Waters, where they will be asked to explain exactly what happened, and why Robinhood, Citadel and others did what they did.
As a reminder, here’s the full list of guests who will testify (with Dave Portnoy notably absent).
The witness list for the virtual hearing is as follows:
- Vlad Tenev, Chief Executive Officer, Robinhood Markets
- Kenneth C. Griffin, Chief Executive Officer, Citadel
- Gabriel Plotkin, Chief Executive Officer, Melvin Capital Management
- Steve Huffman, Chief Executive Officer, Co-Founder, Reddit
- Keith Gill, independent investor
- Jennifer Schulp, Director of Financial Regulation Studies, Cato Institute
We look forward to watching Chairwoman Waters and some of the leftist firebrands on the committee (including AOC, one of the first to call for a hearing into the trading fiasco) ‘grandstanding’ into all the witnesses, particularly the one megabillionaire (Griffin) among the group, as they grapple with the arcane topic of market microstructure while attempting to smear everyone as a bad actor (especially the Russians – who Reddit CEO said were absolutely not involved).
For those who have the privacy and the time, gamestop hearing-themed drinking games are already pouring forth from fintwit.
