Congress vs. Robinhood and others over GameStop stock
I believe that the decisions made by you and this company have harmed your customers.
Mr. Tenev, would you be willing to commit today to voluntarily pass on the proceeds of the payment for order flow to Robinhood customers.
Congresswoman, I appreciate that question when, the statement you refer to was made, I believe 2015 or 2016.
It was before Robin Hood forced the entire industry to drop commissions and replicate our business model which made him so I should take that as a no you're not willing to pass on the proceeds of payment for order flow to your customers when when the other brokers dropped.
I'm just talking about today right now.
Payment for order flow Congresswoman allows for commission free trading in the context of trading commissions.
It's a much larger source of revenue in the past than paying.
I apologize and it's I I don't wanna be rude I just have limited time, but if removing the revenues that you make from a payment for order flow I would cause the removal of free commissions.
Doesn't that mean that trading on Robinhood isn't actually free to begin with because you're just hiding the cost, the cost in terms of potentially poor execution or the cost of loss rebates to your customers.
So certainly Congresswoman Robinhood is a for profit business and needs to generate some revenue to hope.
To pay for the costs of running this business people were initially skeptical that the model even with payment for order flow would work when your Commission's and I think we've proven that otherwise by making this the standard model by which brokerages operate now.
If you get an order from fidelity and you get an order from Robin Hood.
And you're paying for the Robin Hood order flow.
Is that customer getting, is the Robin Hood customer getting as good a price as the Fidelity customer?
The execution quality that we can provide as measured in terms of price improvement Is heavily related or correlated to the size of the order that we receive.
So if I were to speculate.
I did, don't tell me that it's a that there are other factors involved and take us down another road.
I'm asking you a clear question.
Sue me same size of order.
One comes in from Robin Hood one comes in from fidelity.
So as I was trying to explain because the Robin Hood order comes from a community of traders who tend to trade in smaller size,
That isn't my question, sir, you're evading my question by making up other questions.
Let me repeat
Two identical orders come in same stock, same quantity.
Once for Robin Hood, one for fidelity, what happens?
The quality of the execution varies by the channel of the order.
This is a commonly understood phenomenon in economics that channels matter.
So for example, when you go get a mortgage, a mortgage from JP Morgan to their clientele has a different rate of interest, than them.
Okay, let me reclaiming my time sir, who gets the better deal?
Well, one that comes from a broker, who is paying, being paid for order flow, and one not.
Can you testify that.
On balance, there is no difference assuming the same size of the order
So as I said earlier size of the order is only one factor
You are doing a great job of wasting my time you should.
If you're going to filibuster you should run for the Senate
Why did Robin Hood restrict the buying but not the selling Of GameStop.
And why do folks get locked out on the buy side only?
Ranking Member McHenry, I appreciate the opportunity to address that.
The reason that Robin Hood, first of all, let me say Robin Hood is always committed to providing access.
It's in our name.
It's in everything that we do The decision to restrict GameStop and other securities was driven purely by deposit and collateral requirements imposed by our clearing houses.
So buying securities-
In pieces are [INAUDIBLE] requirements, selling does not.
Moreover, Preventing customers from selling is a very difficult and painful experience where customers are unable to access their money.
So we don't wanna impose that type of experience on our customers unless we have no other choice.
And even though I recognize customers were very upset and disappointed that we had to do this,
By imagine, it would have been significantly worse if we prevented customers from selling.
Let's be crystal clear.
That decision you made to restrict the buying, but not the selling of GameStop, was it based on pressure from anyone?
On the witness panel here today,
Not at all zero pressure from anyone.
It was a collateral depository requirement decision made by our Robinhood.
Do you believe your lack of candor with your customers might have contributed to the wild speculation and confusion that resulted in the aftermath of your trading restrictions?
Look, I'm sorry for what happened.
I apologise and I'm not gonna say that Robin Hood did everything perfect and that we haven't made mistakes in the past, but what I commit to is
Making sure that we improve from this.
We learn from it and we don't make the same mistakes in the future.
And Mr. Plotkin you made the comment in your testimony a minute ago that you were not trying to manipulate stock yet.
If you're If you're short selling a stock of 140%.
For me on the outside looking in, it looks like that's exactly what you're doing.
Explain to me why that's not manipulating the stock.
Thank you, Congressman.
I can't speak to other people that were shorted anytime we shorted stock we located borrow, our systems actually force us to find a borrower.
So we always, you know, short stocks within the context of all the rules.
So I believe that the short interest in GameStop was was exceptional.
And I'm not sure it's worth us delving into legislated corrections for a very unique situation in terms of the extreme size, the short interest.
I will say that all of the large markets in fact, every bank, every hedge fund does have to comply with requirements to borrow shares to short shares.
In the course of their day in and day out business, the practice of naked shorting was was largely curtailed by sec mandate years ago.
I have to ask this.
You said that you didn't talk to anybody.
Citadel Citadel securities.
Did anyone in your organization since January 1, contact Robin Hood, Are you asking if we've had contact with Robert.
With respect to Game Stopped and what we're obviously talking about.
So, Congressman, we offer to have my colleague who manages that relationship be here today.
Instead, he has first hand knowledge?
We of course are talking to Robinhood routinely in the ordinary course of business we manage a substantial portion of their order flow.
Well, I understand that but did you talk to them about restricting or doing anything to prevent people from buying not selling but buying in Game Stop
Let me be.
Anybody in your organization.
Be perfectly clear.
On January 28th, you represent it to the media that there was no liquidity problem.
Isn't it true that being concerned about having enough capital, to meet deposit requirements.
Isn't that the liquidity problem?
Could you just answer yes or no?
I appreciate the opportunity to address that.
Yes or no.
We always felt comfortable with our liquidity and the additional capital that Robin Hood raised
Answer yes or no.
I don't have time.
I just need a yes or no answer.
I stand by my statement, the additional capital we raised wasn't to meet capital requirements or deposit.
I'm reclaiming my time.
Alex Kearns, who was 20 years old at the time from Naperville, Illinois, killed himself largely thanks to a.
A bug in the Robinhood system.
The bug was that he turned on the app said he owed $730,000 that he did not have because of options positions that he thought cancelled out but didn't appear to.
He called the helpline.
The helpline of course was not manned, as we've discussed.
He sent several panicked emails three to be precise did not receive a response.
Ultimately, there was a response from email saying that in fact, his positions were covered.
But by that point it was too late because he had taken his own life.
Let's say Imagine right now that we are today's version developers.
I think that an exposure, and I call your helpline now let's call and let's listen to the time we have remaining to what I'm going to hear on the other end of the phone or on your app.
If you haven't, please make sure to include details of your order when reaching out.
Thanks and have a great day.
Is retail, individual retail participation in the marketplace?
Gambling, casino gambling or using funny money?
Mr. Gill, why don't we just start with you?
I believe it's an opportunity for investors to participate in the market just as institutional participants..
You recommended GameStop before would you buy their stock now at roughly 45.
It started at 48 earlier today, you were talking about buying it and being happy when it hit cross 20.
So are you buying that stock today?
Well, let me just say that investing can be risky and my particular approach to investing is rather aggressive than may not be suitable for anyone else but for me personally Yes.