Congress is blaming Robinhood, not Reddit

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Vlad Tenev, Robinhood’s CEO, very a lot occupied the new seat in at this time’s hearing earlier than the Home Monetary Companies Committee over January’s market volatility. 

Not one of the representatives appeared significantly concerned with placing the screws to Reddit CEO Steve Huffman, and plenty of appeared to provide Keith Gill the identical props the remainder of us did.

These aren’t the market manipulators you’re in search of

Gill, in all equity, was probably the most likeable character concerned, introducing his remarks by saying “Just a few 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 at this time, at present costs. That is even if wild GME buying and selling has attracted criminal investigation.

That lack of scrutiny in direction of Gill and Huffman does a lot to quell widespread concern 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 announced at this time extra hearings to scrutinize the largest gamers in social media. Reddit, for now, appears to have flown below 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 mentioned, ‘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 needed solutions from Tenev.

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

“I imagine a vulnerability was clearly uncovered in what you are promoting mannequin,” mentioned Congressman Anthony Gonzales whereas questioning Tenev. “We simply can’t stay in a world the place my constituents can have their shares liquidated if you happen to can’t make a capital name.”

Many referred to 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 mentioned “you and anyone else schooled in finance know is meaningless with no rate-of-return.”

However whereas at this time’s listening to revealed a whole lot of hostility in 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 scenario wouldn’t have developed in any respect if the U.S. had buying and selling that settled the day of, somewhat than two days later — termed T-0 somewhat than T-2. Tenev famous “The prevailing 2-day interval to settle trades exposes buyers and the system to threat.”

Kenneth Griffin, CEO of Citadel, which he described as “the biggest market maker on the planet,” disputed the probability of a real-time system for securities buying and selling within the subsequent a number of years, saying: “The difficulty is the whole lot has to work completely.” Actual-time buying and selling, he mentioned, “requires that each little bit of the workflow is completely synchronized throughout the events.” Davidson disagreed, saying “Clearly in what you are promoting the expertise exists for buying and selling corporations which can be engaged in high-frequency buying and selling.”

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

Right now’s listening to was just the start, Chairwoman Waters affirmed. She mentioned the committee aimed to carry two extra with totally different witnesses.