Robinhood, Citadel and Reddit CEOs testify before Congress

Amid the GameStop trading frenzy in recent weeks, the U.S. House Financial Services Committee heard from tech CEOs, including Robinhood CEO Vlad Tenev, on Thursday, Feb. 18. Lawmakers are assessing whether consumer protections were breached and if regulatory actions are necessary.

Why should we care?
The surge of trading activity on shorted stocks like GameStop and AMC Entertainment sent them soaring in value as retail investors, many using Robinhood, kept buying shares. Robinhood and other brokerages briefly halted trading in order to meet regulatory capital requirements, drawing criticism from consumer advocates and politicians. Robinhood’s practice of payment for order flow has also drawn scrutiny amid conflict of interest accusations. Some questions regulators are considering include oversight of hedge funds, the role of social media to fuel investment strategies, and the gamification of trading apps. In his testimony, Tenev reiterated that the decision to restrict buying of stocks like GameStop, AMC, and others was due to deposit and collateral requirements from its clearinghouse and not in response to directions from hedge funds. He also apologized on behalf of the company. Meanwhile, Congressman Brad Sherman (D.-California) asked Citadel owner Ken Griffin whether Robinhood traders get the same prices as Wall Street traders, and expressed frustration with the practice of payment for order flow. Payment for order flow is a process whereby Robinhood is paid for customers' trades by market makers including Citadel, the trading firm owned by Griffin with which it has a partnership. “When your broker is being paid for order flow you get a worse execution,” he said.