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Market Recap: Thursday, February 18

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Stocks fell on Thursday after a new report on the U.S. labor market sharply disappointed, ending a streak of better-than-expected economic data and underscoring the incomplete economic recovery still taking place amid the ongoing pandemic. Baker Botts Litigation Department Co-Chair Bridget Moore joined Yahoo Finance Live to break down the latest market news as Robinhood officials testify before Congress.

Video Transcript

ADAM SHAPIRO: All right, welcome back to Yahoo Finance's coverage of the House Financial Services Committee hearing on what we all remember as the GameStop Robinhood issue. I'm here along with Seana Smith.

And Seana, before we get into a recap of some of what we witnessed, just want to let everyone know the markets closed down today. The S&P 500 was off 17 points, the Dow was off 119 points, and the NASDAQ was off 100 points. But it's GameStop that everyone is talking about because that's the center of attention, along with Robinhood. GameStop closed down today. It was off about 11%.

Back to the hearing, there were some dramatic moments since they began at 12 noon. But just recently, the best I thought was when that one congressman held up a phone and said to Vlad Tenev, this is what happens when someone has a problem and tries to get through to you folks. And it was a recording about, if you're having trouble, please go to the website. Seana.

SEANA SMITH: Yeah, Adam, and we know that that issue has been raised a number of times over the last couple of hours, just what Robinhood needs to do to better address some of these issues when customers do have problems with some of the orders that they placed. We've heard it time and time again that they have not been able to reach their customer service. So playing that voicemail, or that recording, I guess, is a better way to say it, it was very effective and also, I think, caught both of our attentions. We were talking about that there offline.

But Adam, a couple of other things that stuck out to me in this hearing over the last couple of hours, this isn't a surprise, but of course, a lot of the attention has been placed on Robinhood CEO Vlad Tenev, a number of questions addressing the motives behind Robinhood's decision to curb trading back on January 28th. He said repeatedly and continuously that it didn't have anything to do with the hedge funds. He also went on to further defend Robinhood's business model multiple times.

And Adam, another thing I want to point out, I don't know if this number has been put out in the past, but Tenev said that Robinhood generated $35 billion in realized and unrealized gains for customers. And he used that figure as really proof that the product, that Robinhood's product is working for its customers. So that, of course, is something that I took note of.

And then you mentioned some of the tension that, obviously, we have seen between those that are testifying and some of the lawmakers. The one that did catch my attention was Congressman Sherman and Ken Griffin, the exchange there, just about the paper orders and exactly what that means here going forward. This is something that has been brought up a number of times over the last couple of hours. But that testy exchange there with the congressman accusing Griffin then of wasting his time has kind of, I guess, encapsulates the hearing over the last couple of hours.

ADAM SHAPIRO: Well, there was also that question, too, to Tenev that Robinhood wasn't the only platform that restricted and limited the ability of its clients to trade to purchase shares in GameStop. But of course, there was the $3 billion collateral issue that they had with their clearinghouse. There's a lot more to get through with the hearing. It's going to resume in just a few minutes. But let's go over to Jared Blikre. He's been watching markets, as well as the hearing, Jared.

JARED BLIKRE: Yeah, just to follow up on some of the things that have been going on, I think it's striking how little we've seen Keith Gill involved so far. And I think that's a good thing. The questions have been centered mainly to people actually involved in this, in the market microstructure. Keith Gill didn't create the situation.

But I think it was also interesting to listen to some of the exchanges with Ken Griffin, CEO of Citadel. And he's really pushing for subpenny-ization, I guess. And what that is, is right now the quote spread on stocks on US-listed exchanges can be only one penny if it's greater than the dollar. So for a $5 stock, the bid ask can be as tight as $5.01, $5.02. He wants to make it a fraction of that.

Why is that important? Well, way back about 20 years ago, because it was 2001, the SEC forced decimalization into the markets. Previously, the smallest increment in a stock was one-eighth of $1. And this effectively gave rise to high frequency trading. So I think it's an issue of Mr. Griffin talking his book here.

And there might be some merit to it, but I think it's, in the end, we're probably going to get some regulatory response to this, some congressional response that creates unintended consequences, and probably effectuates things that have been in the works for years, and we just haven't had the catalyst to push for them yet. So I think Wall Street in the end probably benefits from these hearings. The entrenched players probably benefit from these hearings. And I'd say the good news is that they're not going to hang Keith Gill and the others of the Wall Street Bets crowd out to dry. We'll have to see what happens in the Senate.

ADAM SHAPIRO: Perhaps some of us were wondering if there would be direct questions about pump and dump schemes and whether Mr. Gill would be held to account for some of his social media chatter. But as he said at the beginning of the hearing, he is not a cat.

Bridget Moore is Baker Botts Litigation's department co-chair. I want to bring you into this because there are now suits against Mr. Gill and against different players in all of this, which courts are, at this point, allowing to proceed. How should we as investors-- if we use Robinhood, should we be concerned about these suits?

BRIDGET MOORE: Well, sure, thank you for having me. These suits, obviously, cost money and divert resources. But I think it's also going to be interesting to see the arguments that are set forth, including the fact that, as investors, when we use a platform like Robinhood, we sign up for it. And we make certain representations that we understand the risks associated with trading. So it's going to be interesting to see how that all plays out.

But in terms of what we should look for, it's certainly, again, there's going to be-- there is going to be a certain amount of money and time that is going to be diverted to these lawsuits that will be absolutely rigorously defended. Because there are a lot of potential plaintiffs out there.

SEANA SMITH: And Bridget, I wanted to ask you just more a little bit about that, just because we've heard this a number of times, just Robinhood encouraging investors to take uninformed risks. I'm curious just to get your thoughts on that and just some of the answers that we've heard not only from Robinhood today, but also from Citadel's Ken Griffin.

BRIDGET MOORE: Yeah, it's a great question, and it's a tough one. And I think it really goes beyond those two organizations. How do you balance getting investors involved in a platform like this and involved in the markets, which is wonderful, but also protecting them. And the answers today are education, right? You put it out there. You offer them resources. But if they don't tap into those resources, are you still going to be asked--

ADAM SHAPIRO: Bridget--

BRIDGET MOORE: --if you've done enough?