GameStop Hearing in Congress, Hedge Funds Called to Testify

18 Feb 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Executives testify to Congress on Thursday
  • Citadel’s Ken Griffin will call on lawmakers for a new trading rule

Congress will start its first hearings on GameStop, the buzzy stock that sparked the fight between billionaire hedge fund managers and the retail trading community on Reddit. The GameStop hearing, due later today, will be hosted by the House Committee on Financial Services. Lawmakers will have the chance to ask the tough questions; while executives, as well as a Reddit trading star, will defend their positions about last month’s trading turmoil.

The list of witnesses called to testify includes Citadel CEO Kenneth Griffin, Melvin Capital Management CEO Gabriel Plotkin, Reddit CEO Steve Huffman, Robinhood CEO Vlad Tenev, and Keith Gill, one of the most outspoken bulls on GameStop. All these, players central to the GameStop stock market frenzy, will present their take on the market bonanza surrounding GameStop stock, a video game retailer that saw its shares rise by nearly 2,000% in January.

The hearing’s topics will include Citadel’s relationship to Melvin Capital and Robinhood, why brokerages restricted buying of the GameStop stock, and how retail investors could be protected from the risks involved in stock trading. Each of the witnesses will be personally questioned over their involvement with the stock’s dizzying rally. According to the testimonies released ahead of their appearances, the hearing promises a diverse set of perspectives and comments as to what happened and why it happened.

Hedge Fund CEO Felt “Personally Humbled”

Billionaire and owner of Citadel Securities, Ken Griffin, will speak on the rule of two business days needed to settle a trade. In his opinion, there should only be one day between a trade’s execution and its settlement. Robinhood CEO, Vlad Tenev, will argue for the immediate settlement of trades. Defending Robinhood’s decision to halt trading, he will justify the real-time settlement as a way to “better react to periods of increased volatility in the markets, without restricting the purchasing of securities.”

Ken Griffin will defend Citadel’s role in supporting Robinhood by carrying out the trades. “When others were unable or unwilling to handle the heavy volumes, Citadel Securities stepped up” he is expected to say according to his testimony.

Reddit CEO Steve Huffman will speak on the WallStreetBets subreddit and its role as ground-zero for communication between members of the retail trading community. According to Mr. Huffman, the group’s activity “was well within normal parameters”. Keith Gill, the retail trader also known as Roaring Kitty, will testify to Congress that the decision to purchase GameStop shares was entirely his own, based on his beliefs that the company was dramatically undervalued. “I’m as bullish as I’ve ever been on a potential turnaround” he will say before the committee later today.

Gabe Plotkin, CEO of Melvin Capital, the hedge fund targeted by the retail traders for its short position in GameStop, will say he was “personally humbled” by the stratospheric rally that went against his bet and ultimately resulted in billions of dollars lost.

The virtual hearing entitled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide” will start at 12:00 pm EST. GameStop stock slipped 7.21% on Wednesday and is trading below the $50-mark in the premarket hours on Thursday.

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