Robinhood executives join Reddit traders in grilling over Gamestop saga
Reddit investors, hedge funds and online brokerage executives took to the Capitol in Washington this afternoon for a groundbreaking hearing into last month’s Gamestop saga.
In a landmark case that could rip up the rulebook on Wall Street, the House Committee on Financial Services called witnesses to unpack last month’s events, including the chief executives of Robinhood, Reddit, Tenev, Citadel and Melvin Capital.
An unprecedented tug of war between Reddit investors and hedge fund stalwarts last month saw shares in struggling video game retailer Gamestop soar more than 300 per cent.
The popularity of the video games retailer had dwindled in recent years as consumers continue the shift to digital downloads, leading hedge funds to take out large short positions against the firm.
Short sellers, who borrow and sell shares in a bid to make gains if the price falls, have long attracted condemnation among financial circles.
But an army of Reddit investors last month decided to beat them at their own game. Traders on a subreddit called Wall Street Bets started to buy up stocks in Gamestop in a bid to cause a “short squeeze”, thereby lifting its share price to new heights.
Their actions saw the hedge funds scrambling for emergency bailouts, leading low-cost trading platform Robinhood to pull the plug on future trades of the stock. Gamestop’s share price has since sunk back from a peak of $483 to $45.
Reddit chief executive Steve Huffman said the drama proved a revolutionary force against the financial establishment.
Speaking at the Capitol, he said: “A few weeks ago, we saw the power of community in general and of this community in particular when the traders of Wall Street Bets banded together at first to seize an investment opportunity not usually accessible to retail investors, but later more broadly to defend all retail investors against the criticism of the financial establishment”.
Keith Gill, who served as one of the chief architects of the Reddit storm under the online alias Roaring Kitty, defended his investment in the video games retailer.
Gill pushed Robinhood for answers on why it restricted brokering at the peak of the short squeeze, and slammed the hedge funds for placing such heavy shorts against Gamestop in the first place.
“It’s alarming how little we know about the inner workings of the market,” he told the hearing.
“I believe an analysis of Gamestop’s recent price action must start with a discussion of the exorbitant short interest in the stock , as well as an investigation into any potential manipulative shorting practices,” he added.
Robinhood chief Vlad Tenev attempted to quell suspicion over his decision to restrict trading at the peak of the frenzy.
“What we experienced last month was extrordinary, and the trading limits we put in place on Gamestop and other stocks were necessary to allow us to continue to meet the clearinghouse deposit requirements that we pay to support customer trading on our platform,” he said.