Robinhood, Citadel, Melvin Capital CEOs Grilled In Response To Reddit, Hedge Fund Short Squeeze Drama

On Thursday, the House Financial Services Committee committee held a special hearing to attempt to sort through the stock market drama surrounding Reddit’s WallStreetBets, the trading app Robinhood, hedge fund Citadel Securities and stocks like GameStop Corp. GME that recently experienced extreme surges in volatility resulting in trading restrictions.

The CEOs of Reddit, Robinhood, Citadel Securities and Melvin Capital testified about the circumstances surrounding the GameStop short squeeze and the factors driving Robinhood’s decision to restrict GameStop buying.

Robinhood CEO Vladimir Tenev said Robinhood restricted GameStop buying to remain in compliance with clearinghouse deposit requirements, and Robinhood received “zero pressure from anyone” to enact those restrictions. He said the GameStop surge was a one-in-3.5 million event, which is “unmodelable” when it comes to risk management, adding that Robinhood has already made changes to its risk management strategy to ensure that this type of event does not occur again in the future.

Related Link: GameStop Congressional Hearing: Robinhood, Citadel Deny Collusion In Prepared Remarks

No Manipulation Of WallStreetBets: Reddit CEO Steve Huffman said Reddit is constantly monitoring its groups, including WallStreetBets, to look for any evidence that its platform is being abused or manipulated.

He said Reddit found absolutely no signs WallStreetBets was manipulated in any meaningful way.

Melvin Capital Management founder and CIO Gabe Plotkin said his firm was targeted by WallStreetBets in part due to anti-Semitism. He added that Melvin never opens naked short positions in stocks, and the majority of the fund's investments are long positions.

Plotkin, who has shorted Tesla Inc TSLA in the past, would not speculate as to whether Tesla CEO Elon Musk’s Jan. 26 tweet reading “Gamestonk!!” was an attempt to drive GameStop’s stock price higher in retaliation against Tesla short sellers.

PFOF A Positive For Investors: Ken Griffin, CEO of Citadel, said payment for order flow (PFOF) has been a “big win” for retail investors and has led to the lowest retail trade execution costs in history. He also said PFOF has been an important driver of innovation within the market in recent years.

Jennifer Schulp, director of financial regulation studies for the Center for Monetary and Financial Alternatives at the Cato Institute, said PFOF has in fact been good for retail investors, and there was no evidence of systemic risk or large-scale failures during the period of GameStop volatility.

Finally, WallStreetBets poster and GameStop trader Keith Gill said his investment in GameStop was “based on fundamentals” rather than an attempt to manipulate the market. Gill said he takes a “rather aggressive” approach to investing that may not be right for everyone, and he would still be a buyer of GameStop stock at its current price.

At the time of writing, the hearing was ongoing.