Rep. McHenry: Retail investors want ‘more sophisticated investment opportunities’
House Financial Services Committee Ranking Member Rep. Patrick McHenry (R-NC) joins Yahoo Finance Live to discuss yesterday’s GameStop hearing.
Video Transcript
- Yesterday, we heard from the House lawmakers as they heard from the executives of Reddit as well as Robinhood, Melvin Capital, and Citadel. Let's bring in a ranking member of the House Financial Services Committee, Congressman Patrick McHenry. And Congressman, it's good to talk to you today. A very lengthy hearing yesterday. What was your takeaway? You've called this a fact finding mission. What's the one nugget that you pulled away, you think, from the hearing that could lead to potentially additional questions or regulation?
REP. PATRICK MCHENRY: Well I think this is a bulletpoint to a larger value. This is a story and a larger narrative. And the larger narrative is that retail investors, so-called non sophisticated investors, under our securities law. They want more and better access to our markets. They want more investment opportunities. They want more sophisticated investment opportunities and they've been locked out of it. So this is but a bulletpoint in a larger story and a larger narrative about fees being crashed through competition, and about retail investors wanting greater access to more products.
- And Congressman, I mean, I guess, you know, there were criticisms even during the hearing of political theater on both sides. It was interesting the start that we got when Robinhood CEO Vlad Tenev was talking during his opening statement, you had to kind of jump in there to stiff arm Chair Waters to kind of, protect his testimony.
- She was kind of, interrupting with questions of her own.
- What did you make of just the overall flow of this thing and maybe the grade that you would have given it in terms of getting into the details?
REP. PATRICK MCHENRY: I would give it less than a passing grade as far as getting into the details. Look, when you're in the majority, not to quote Hamilton the musical, but you get to choose the menu, the venue, the seating. And so the Chair of the Committee gets to determine when we meet. For how long we meet. And who's on the panel. And as a Republican, as being in the minority, I get to have one witness on the panel. So I tried to get a witness who could answer the fullness of what's happening in the marketplace. The rest of the folks on the panel get to a piece of the story. The Reddit CEO got a couple of questions, but frankly is secondary. You're talking about asking the CEO of a company about stuff posted on one section of Reddit when they have millions of users.
So I don't think the setup was right and I don't think the panelists were correct. And I think it was about grabbing a headline, rather than finding facts. The reason why I called the hearing and called for the hearing was so that we could get to the heart of what happened here, and whether or not laws were adhered to, and whether or not we need to change laws to open up additional access or what's really happening in the marketplace.
- What do you see is the answer to that latter point that you just made about whether changes are necessary? And if so what's the next step?
REP. PATRICK MCHENRY: Well I think first of all, we need to ensure that there's disclosure around payment for order flow. There is. That laws were adhered to in this transaction. That appears to be the case, and we're going to continue to dig through that. And so my clear takeaway is that to reregulate, or to enhance regulation, or to layer on more regulation, or to lock retail investors out is the wrong approach. New taxes, a financial transaction tax as one of my Democratic colleagues called for in a hearing is not the right approach. Taxing people for their investment opportunities or taxing people for saving is not smart for our economy and for long term saving. So we know there are some bad ideas. I think we have to look more deeply at what's happening here. What is happening is, we have individuals that paid off student debt. We have folks that lost money. But we also have people that said you know the hell with it, we're just going to invest. We don't care if-- we're going to get into this trade-- we don't care if we make money or lose money, we just want to put the screws against a rigged system.
And so they're speaking to the larger narrative piece that I mentioned, that they want more access to equity. And that's why I raised with the CEO of Robinhood whether or not they would offer equity to the users of their app. If they seek to go public, will they do that? The fact is that regulation out of Washington prevents that from happening. The Uber driver should have been able to have an ownership stake. They're the ones that made Uber successful. The Robinhood user is the one who's made Robinhood, the company, successful. So we need to make sure that we can open up equity ownership in our society much more broadly than it currently is.
- Yeah and it was I mean, it's a complicated slate of issues you guys were getting into. So I mean, just to be fair, there was a lot of moving pieces and you had five hours, so maybe it could have been divvied up. I hear what you're saying on that front.
When it comes to maybe the issues on Robinhood specifically, because, of course, payment for order flow is something all the brokers get into. But Robinhood was the only one on the panel to talk about it. And I really enjoyed the line of questioning that came from Representative Anthony Gonzales, who got into the details about what happened specifically when they had to raise the $3 billion to kind of cover the liquidity issues here. So I wouldn't necessarily let them off the hook right away.
So what do you want to learn more about what happened there? Because obviously, we saw GameStop stock. We were talking about it on Monday. We saw the trading issues come in later in the week. So what more do you want to learn about maybe what happened on the minute by minute basis that could be potentially problematic in locking out retail investors?
REP. PATRICK MCHENRY: Well, I think that is a very good point. There is some detail here that we need to drive towards. And Representative Gonzales, from Ohio, I think asked a really sharp question, which was getting into the nature of whether or not Robinhood was equipped to provide the access that they claimed that they were providing to their users and why they lock customers out. And so they're raising $3 billion tells me that they needed additional liquidity. That's kind of obvious, right? That's an obvious statement to the marketplace. But we need to make sure that these institutions were properly regulated for the value at risk, properly regulated for what could be a very turbulent marketplace that hour to hour, minute to minute, day to day. And so we need to get more deeply into the heart of those issues of proper funding and liquidity practices of broker dealers, and specifically new broker dealers.
- All right appreciate you coming back on here to chat all about that. Obviously, this is an ongoing story so love having you back. We'll have to have you back yet again, as this goes on for Representative and ranking member of the House financial Services Committee, Representative Patrick McHenry. Thanks again for coming on.
