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Congress is blaming Robinhood, not Reddit

02/18/2021

We did not be taught a lot new in right now’s listening to, however the highlight was positively on the gamified buying and selling app, moderately than the merchants on r/WallStreetBets.

Vlad Tenev, Robinhood’s CEO, very a lot occupied the recent seat in right now’s listening to earlier than the Home Monetary Companies Committee over January’s market volatility. 

Not one of the representatives appeared notably fascinated by placing the screws to Reddit CEO Steve Huffman, and lots of appeared to present Keith Gill the identical props the remainder of us did.

These aren’t the market manipulators you might be in search of

Gill, in all equity, was probably the most likeable character concerned, introducing his remarks by saying “A number of issues I’m not: I’m not a cat and I’m not an accredited investor.” Gill, who actually began this chain of occasions by posting about his funding into GameStop in June 2019, even doubled down on his opinion that GME stays a superb purchase right now, at present costs. That is even supposing wild GME buying and selling has attracted prison investigation.

That lack of scrutiny in the direction of Gill and Huffman does a lot to quell widespread worry that the occasions surrounding explosive buying and selling in GameStop (GME) shares on the finish of January would kick off probes into social media platforms’ function in potential market manipulation.

That is even because the Home Antitrust Subcommittee introduced right now extra hearings to scrutinize the largest gamers in social media. Reddit, for now, appears to have flown beneath the radar.

Congressman Warren Davidson, who sits on the committee, famous this uncommon space of consensus, telling Cointelegraph: “I used to be hopeful proper out of the gate as a result of early on within the information cycle AOC was sticking up for the Reddit customers, saying these folks ought to have a proper to commerce. After which Ted Cruz, on the opposite finish of the political spectrum stated, ‘effectively, we agree.’”

Tenev’s enterprise mannequin

Although broadly, Republicans had been extra lenient than Democrats in addressing Robinhood’s exercise, and particularly the agency’s controversial shut-off of shopping for however not promoting of GME and different high-volatility shares, all people wished solutions from Tenev.

The character of Robinhood’s income mannequin, which relies on the sale of order circulate, whereas promoting itself as commission-free, fell beneath mass scrutiny, as did it’s dependence on a $3 billion injection of capital to satisfy collateral necessities.

“I imagine a vulnerability was clearly uncovered in your enterprise mannequin,” stated Congressman Anthony Gonzales whereas questioning Tenev. “We simply can’t dwell in a world the place my constituents can have their shares liquidated in case you can’t make a capital name.”

Many known as out Robinhood’s claims to be busy democratizing finance. Tenev persistently pushed the determine of $35 billion as Robinhood customers’ whole good points, which Rep. Jim Himes stated “you and anyone else schooled in finance know is meaningless with no rate-of-return.”

However whereas right now’s listening to revealed a whole lot of hostility in the direction of Tenev, it wasn’t all that academic.

Regardless of Chairwoman Maxine Waters’ admonition that “This isn’t political theater in any respect,” there didn’t appear to be any concerted sense of options to the epic buying and selling that fueled GameStop’s (GME) meteoric rise on the finish of January.

Actual-time resolution?

Some proposals, together with from Tenev himself, in addition to Davidson, had been that the state of affairs wouldn’t have developed in any respect if the U.S. had buying and selling that settled the day of, moderately than two days later — termed T-0 moderately than T-2. Tenev famous “The prevailing 2-day interval to settle trades exposes traders and the system to danger.”

Kenneth Griffin, CEO of Citadel, which he described as “the most important market maker on the earth,” disputed the chance of a real-time system for securities buying and selling within the subsequent a number of years, saying: “The problem is every part has to work completely.” Actual-time buying and selling, he stated, “requires that each little bit of the workflow is completely synchronized throughout the events.” Davidson disagreed, saying “Clearly in your enterprise the know-how exists for buying and selling companies which can be engaged in high-frequency buying and selling.”

Davidson famous the potential function of blockchain. The potential of safety tokens to unravel points with intermediaries and brokers has been one of many long-promised advantages of blockchain, although that’s altering.

In the present day’s listening to was only the start, Chairwoman Waters affirmed. She stated the committee aimed to carry two extra with completely different witnesses.