Washington Struggles With Robinhood Politics

BusinessEcommerce

  • Author Shawn Njenga
  • Published February 15, 2021
  • Word count 529

Later this month, the co-founder of Robinhood is likely to find himself being grilled by angry lawmakers in Washington, who are demanding answers over his company’s role in the GameStop trading saga.

Vlad Tenev’s appearance on February 18, which has not yet been formally announced, would come against the backdrop of a wave of populist outrage, after his online brokerage was attacked for imposing limits on trading in GameStop and other stocks that had soared amid wild enthusiasm from retail investors.

Mr Tenev has said the company imposed restrictions after the clearing houses that settle trades demanded it stump up more margin, but the curbs prompted howls of foul play among retail investors, who claim they favoured hedge funds that had placed large bets against the stocks.

Their anger has been taken up by lawmakers across the political spectrum, from Alexandria Ocasio-Cortez, the leftwing Democratic representative from New York, to Ted Cruz, the Republican senator from Texas.

Last week Ms Ocasio-Cortez was one of the first to suggest a need for congressional hearings as she described the restrictions as “unacceptable”.

“We now need to know more about Robinhood’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit,” she said on Thursday.

How would you propose to regulate this kind of activity out of existence? I haven’t seen a single one of them tell me what that solution is

Tony Fratto, former Treasury official

But the politics are complex. This week, the value of GameStop shares and other stocks favoured by the army of retail investors have plunged, leaving many nursing significant paper losses.

The attention from lawmakers could quickly shift from whether the trading restrictions imposed by Robinhood and others were unfair to whether more should have been done to prevent people buying stocks that had become overvalued after being egged on by others on social media sites such as Reddit.

“What’s frustrating to me is that too many people are getting caught up in stick-it-to-the-man narrative, which admittedly is an attractive narrative,” Jim Himes, the Democratic member of the House from Connecticut, told the Financial Times.

“It’s being used in the service of exposing some retail investors to huge risk, and I think they’ve probably already been very badly hurt,” he added.

The GameStop affair comes at a time of transition in Washington, with Joe Biden’s new administration vowing a tougher approach to financial regulation compared with Donald Trump.

As early as Thursday, Janet Yellen, the US Treasury secretary, is expected to convene a meeting of regulators from the Federal Reserve, the Federal Reserve Bank of New York, the Securities and Exchange Commission and the Commodity Futures Trading Commission to discuss the issues surrounding Robinhood and GameStop. Gary Gensler, Mr Biden’s pick to be SEC chairman, has however yet to be confirmed for his post.

“Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets,” a Treasury spokesperson said late on Tuesday.

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