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UPDATE 2-Players in GameStop market drama make their case to lawmakers

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Pete Schroeder
·3 min read
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(Adds testimony)

By Pete Schroeder

Feb 17 (Reuters) - Wall Street hedge fund managers, thechief executives of Robinhood and Reddit and a YouTube streamerknown as Roaring Kitty on Wednesday defended their roles inGameStop's Reddit-fueled stock rally before they face agrilling by lawmakers.

They insisted that while the market turmoil around the stockwas unprecedented, there was no foul play, according to officialtestimony published by the House Financial Services Committee aday before a scheduled hearing. (https://bit.ly/3pucdNd)

Last month's Reddit rally drove massive volatility inGameStop and other shares, prompting the post-trade clearinghouses that guarantee trades to call for billions of dollars incollateral from Robinhood and other retail trading platforms.

In response, many suspended buying in the affected stocks onJan. 28. This outraged lawmakers, who questioned if the tradingplatforms were siding with hedge funds that had bet against theshares over Mom and Pop investors.

Vladimir Tenev, CEO of online brokerage Robinhood, wrote inhis testimony that the decision to halt buying was solely due tothe need to meet regulatory capital requirements.

Gabriel Plotkin said he was "humbled" when his hedge fundMelvin Capital Management suffered significant losses on theshort end of the trade, but insisted his firm did not pushRobinhood to suspend trading.

Likewise, Ken Griffin, CEO of hedge fund Citadel LLC andmajority owner of Citadel Securities, a market maker thathandles most of Robinhood's customer orders, disputedspeculation that his firm tried to influence Robinhood'sdecision.

"I want to be perfectly clear: We had no role in Robinhood’sdecision to limit trading in GameStop or any other of the 'meme'stocks. I first learned of Robinhood’s trading restrictions onlyafter they were publicly announced," he wrote.

Keith Gill, who touted his GameStop investment for months onhis Roaring Kitty YouTube channel and Reddit, insisted hisposition was solely based on publicly known fundamentals of thebusiness and it was "preposterous" to suggest he sought toentice unwitting investors to buy shares.

Reddit CEO Steve Huffman said the company had analyzedtraffic on the Reddit sub-feed WallStreetBets where userscongregate to discuss stocks. The company found no bots, foreignagents or bad actors played a significant role in a trafficthat helped drive interest in GameStop.

"WallStreetBets is first and foremost a real community," hesaid.

On Thursday, the House committee will hear from the fivemen, as well as from Jennifer Schulp, director of financialregulation studies at the Cato Institute.

Lawmakers have directed most of their ire at Robinhood, butTenev insisted his company had little choice but to suspendbuying. He provided extensive detail on demands from clearinghouses for the firm to put up billions of dollars in additionalcollateral to meet regulatory requirements.

He also dismissed the idea that Robinhood acted at behest ofany hedge funds, calling such speculation "absolutely false andmarket-distorting rhetoric," while noting its customer agreementand securities rules give it discretion to freeze trading.

Griffin used the opportunity to point to flaws in thepost-trade infrastructure, noting that faster settlement timesand "transparent clearing house capital requirements," couldhelp reduce risks to brokers like Robinhood and its customers.(Reporting by Niket Nishant in Bengaluru and Pete Schroeder inWashington; Editing by Arun Koyyur, David Gregorio and CynthiaOsterman)