Robinhood CEO, Reddit Co-Founder and Others Testify on GameStop Stock
c-span.org
c-span.org
Gamestop's stock rise was unambiguous market manipulation. Sure, the difference between a single actor driving up a stock and a bunch of random people on the internet doing it is significant. But what isn't ambiguous is that GameStop stock wasn't worth nearly 400 dollars, and whatever was going on was fishy. Maybe this legal because of the decentralized nature of the manipulation, but this was likely unclear at the time. It still seems unclear to this day.
If Robinhood continued to allow trades then they could be accused of being complicit in market manipulation. This was probably unacceptable to them. If they banned buying and selling GME then they'd have shitloads if pissed customers who lost money because Robinhood didn't let them sell. So prohibiting buys but not sales seems like the least-bad action. Yes, it has the effect of downward pressure on the stock. But all of the alternatives were worse.
1 bitcoin is worth $50,000 and has less utility. Tesla stock is worth more than every other car company put together, yet I don't see half of global car sales being Tesla.
Are you suggesting that the government should not allow people to freely trade bits of paper between themselves based on your view of how valuable something is?
I think there's a distinct difference here. Bitcoin believers think that bitcoin is worth that and that it's so important. Tesla believers think that Tesla will take over the world, become the self-driving handle-every-transit-issue company, and become dominant in the power industry as well. I'll throw in that gold is of extremely limited utility (for jewelry and industrial purposes), but people think that's really valuable. Warren Buffet talked about how gold was worth as much as 16 ExxonMobiles plus all the crop land in the US plus a trillion dollars left over. Would you rather have a cube of gold that fits in a baseball infield (68 feet per side) or companies that make stuff. If you had $15T today, would you buy the FAANG + Microsoft and still have $7T burning a hole in your pocket or would you go for the shiny cube!
But people still believe gold has so much value.
That contrasts with GameStop where the dialogue was about forcing someone who had a short position to have to buy the shares to cover their position at a high price and drive the price up further. Most people who invest in gold aren't thinking, "I'm going to make money off the bigger idiot who comes after me". People who believe in Bitcoin aren't thinking they have to hoodwink a bigger idiot into buying them in the future - they're just so awesome! People who are Tesla bulls think Elon Musk is going to change the world and grab all the profits across several industries.
I'm not saying one way or the other that the government should regulate these trades, but there is a big difference. In one case, people genuinely believe in the things they're buying. In the other, they're trying to manipulate or take advantage of something in the system - in this case, that someone was short and could be squeezed if enough people/money went in on the squeeze.
why shouldn't that be allowed? If the person shorting has a demand for the share (to cover their position), they must pay for their demand. They knew this could happen going in, and assumed the risk.
Uh... this is literally how any investment works.
But an investment is a belief in enduring value creation, not a belief in selling to a greater fool, or selling at all.
This is why (for the most part) gold, currencies and other 'stores of value' ARE NOT investments, in the proper sense.
You literally cannot make money from an investment without selling it (sans dividends, rent, etc but thats not really what we are talking about)
In the case of BTC and TSLA, people are ONLY buying it because they expect it to go up, and then they will sell to someone "idiot"
Tesla is a pioneer in the electric vehicles industry. It's in a particularly good position to profit from decarbonization movements.
Gamestop is neither of these things. It's a brick and mortar store that was being made obsolete by digital distribution, and even more so from coronavirus.
Should pump and dumps be legal? That's just reading bits of paper based on people's views of how valuable they are. But nobody serious doubts that pump and dumps schemes are justifiably banned. Yes people should mostly be free to buy and trade as they see fit. But some people are willing to act in bad faith to exploit others.
Was Gamestop's meteoric rise a pump and dump? In part it was a short squeeze, but it also had all the hallmarks of a pump and dump. We keep saying that it was a bunch of internet people getting rich off hedge funds. But the people who were actually getting screwed were the ones who bought in at $100+ a share and lost over half their money. Nobody was ever under any illusion that the stock would remotely stay this high, and people were just hoping to get lucky and sell right before the crash. This isn't the kind of behavior someone wants in the stock market.
Having many people buy a stock after being encouraged also sounds like how the system has worked for decades. How many times has an analyst issued a 'strong buy' recommendation, and the stock then goes up.
They can be accused of anything but that doesn't mean it will hold up under any scrutiny. Brokers aren't obligated to make decisions on market manipulation -- that's the SEC's job, who does it quite poorly as we can see from this episode.
Stopping the purchases of a share unilaterally, on the other hand, would look like manipulation.
RH could have done multiple things to avoid this: stopped sign-ups, delayed trades on all new accounts or simply exceeded required deposit ratios so that the clearing house couldn't demand things of them.
There were significant shorts that were essentially unfolding. Ryan Cohen became involved with GameStop and the potential for a new direction of the company possibly raised the price up to the $20-40 range. Over-shorts would have corrected themselves with the skyrocketing price that day and then GME would likely have returned to the $20-40 range it was in prior. That is just things playing out on the market, not manipulation.
Some of the research I've been doing over the past few weeks has revealed that for all retail trading, there are conflicts of interest from the retail broker all the way up the chain to the clearing house. Similar concept in social media where the user is the product. There is a former investment bank trader/portfolio manager that has some videos on this - caveat that he also sells classes now. Search for 'anton kreil retail trading' for some insights.
There was no good option for Robinhood. Keep trading open? Be complicit in a pump and dump. A pump and dump that may be legal by virtue of the fact that it's decentralized, but it's still a pump and dump and Robinhood probably doesn't want to take it's chances. Ban both buy and sales, and people lose money because they can't sell their positions. This is worse. Doing what they did was the best option. Not a good option, and one that still left a lot of people unhappy. Sometimes the best option is still a bad option, it's just the least-bad option.
When a stock is shorted 140% of its outstanding shares it's simply a supply/demand math problem. Eventually those short positions come due via whoever owns them paying too much interest or a margin call and they have to buy actual shares. This demand for shares makes the stock go temporarily up when there aren't enough shares to go around. This happened with VW in 2008 and they temporarily became the most valued company on the planet via a short squeeze [1]. It is a simple supply/demand market correction.
Retail traders, and I'm certain other large investment firms with huge amounts of capital, tuned into this and bought shares knowing that the situation would resolve itself. There are a half-dozen other stocks with similar but smaller short percentages.
Robinhood is doing the opposite of their name, they give people an outlet to dump their money and risky features to lose it quickly. They have been fined by the SEC [2] for not disclosing revenue sources and "provided inferior trade prices that in aggregate deprived customers of $34.1 million" they take deposits from the ignorant, let them do risky things which give their money to Wall St.
[0] https://www.investopedia.com/terms/p/pumpanddump.asp
[1] https://www.autoweek.com/news/industry-news/a35340727/heres-...
this is nonsense and illegal.
RH went insolvent, paused trading for a couple of volatile stocks in the direction that made them more insolvent and allowed the trades that made them less insolvent, and borrowed at least a billion in cash to stay alive.
Is it? I thought it was just a liquidity issue at the clearing house level. They had to temporarily ban selling. We get it, it benefitted the "evil" hedge funds to the tune of billions. Wildly coincidental to the point that it's being treated as if it was corruption.
But if it really was a liquidity issue at the clearing house level, what could have been done differently? From how I understand it, they were floating people who where long GME on unsettled transactions credit wise. If the entity you have a credit line with says "you're about to be in danger to the terms you agreed upon unless you fix the problem", they simply fixed the problem (stop allowing more people to rack up GME shares on their credit). Sucks but that's the reality.
Of course not. There were 9,000,000 people in a subreddit convincing each other the stock was headed to the moon getting thousands of upvotes. The real information on what was going on (like the shares short / float metrics being outdated by 15 days) were deeply buried.
Yes, there was. Robinhood was not meeting the deposit requirements of their clearing house which is why they required a huge cash infusion from Citadel.
Specifically high monetary requirements due to unusually high volatility (essentially a protection created against the risk that the broker will go bankrupt before a trade settles).
Feelings of injustice run hot, but the rules are the rules, and it was following the rules that resulted in the effects you describe. The rules even make sense, which I know doesn't help those that assumed they would face no obstacles while trading.
>>> The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.
These guys had access to confidential information, and they prevented trading, and allowed specific trading that was to their own advantage.
This is a near textbook example of insider trading except that it wasn't the CEO who directly made the advantageous trades. But that makes no difference. This activity fits both the definition and the spirit of insider trading.
You can't say this is insider trading unless you generously expand the definition of insider trading to include every kind of wrongdoing in the market. Robinhood executives didn't trade GME and didn't have any nonpublic information.
These definitions matter.
So...not "nearly exactly" at all. Moreover Robinhood isn't even an insider with respect to GME.
No it didn't, because it didn't have privileged information about the securities. Just because it's a broker doesn't mean it has privileged information about the securities it brokers. Brokers do not typically have privileged information about the securities they broker. To have privileged information, Robinhood would need to be an insider to those securities. Which it isn't.
I don't know what else to tell you - your understanding of the conditions required to meet the SEC's definition of insider trading is simply incorrect. You need to revisit the specific definitions of "insider" and its impact on confidentiality and fiduciary duty.
This is the exact kind of shallow level of analysis that masquerades as meaningful insight and is especially susceptible to being turned into hyperbolic headlines and memes that ultimately become misinformation for the public. This is the exact same way the stock price became overinflated in the first place.
Wallstreetbets pumping penny stock is directly responsible for it. They tricked tons of people who had no understanding of what’s happening and no exit plan into believing it’s a fight with evil guys, that will leave you with big profit. Both of those were BS.
They would have carried on trading $GME if they weren’t called up at 3am by NSCC with a demand for $3 billion security.
I’d be interested in knowing how the NSCC came up with this figure and why they deemed their approach as acceptable.
And he told the comitee he isn't a cat. Epic.
Robinhood seems to people, however ignorant the impression may be, that they don't act like the Big Evil Wall Street Corp guys. So it's not unreasonable to use a good platform for analysis and use Robinhood to trade.
FYI: they will get a little testy if you have more than three round trips without registering as a day trader.
The idea that UX/UI on a consumer oriented product like this is "superficial" seems bizarre to me.
By “financial regulation” do you mean capital requirements being set by unknown individuals at the DTCC according to a formula that is unknown to the public and, by his own admission, even the CEO of Robinhood himself? I don’t know what I’d call that but it’s not what one typically thinks of as financial regulation.
https://docs.house.gov/Committee/Calendar/ByEvent.aspx?Event...
https://docs.house.gov/meetings/BA/BA00/20210218/111207/HHRG...
His opening statement _really_ worked to declare that he is a person, a person of value, a person of intelligence and a person that did his actions and purchase of the stock with meaning and genuine belief in the company.
I, an ignorant bystander, was impressed.
Regarding a potential pivot, Ryan Cohen of chewy.com, has influenced the board and already appointed 2-3 senior positions that indicate a digital business formulating. There also were questions why the board/CEO didn't exercise their ability to issue more shares with the price up. One answer/hypothesis was they were not allowed to do so with unreleased significant financial information, like if they took on a new agreement of some kind with another company. Rumors and speculation all over the place but most of it leading to conclusions of GME not going bankrupt soon.
Overall I think this entire situation is a combination of sketchy abuse of special power (naked short selling and failure to deliver with little/no consequence) and unforeseen side effects (DTCC able to make entire funds, brokers, and exchanges instantly insolvent over night) leading to the Everyman feeling like they have been cheated by the incumbents. I don’t know the correct path forward but I’ve certainly learned more than I’d expected about order flow.
Republican member now laying into how the democrats are being evil because Cato don't like an FTT.
Retail investors do a couple of trades a year.
A tax like this would end high frequency trading overnight.
How is that possible? Surely the market must have more transactions than any individual participant?
You bound 50M in stock between two companies every second in a ladder, you pay $50k/second tax