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Hedge funds and Robinhood face congressional rally on GameStop Reddit

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WASHINGTON (Reuters) – Wall Street hedge fund managers, the managing directors of Robinhood and Reddit and a YouTube streamer known as Roaring Kitty face a scorch on Thursday afternoon from U.S. lawmakers at the rally of Reddit in actions of GameStop Corp.

FILE PHOTO: The GameStop logo can be seen in front of the Reddit logo shown in this illustration taken February 2, 2021. REUTERS / Dado Ruvic / Illustration / File Photo / File Photo

Some of Wall Streets’ most powerful players, including billionaire Republican mega-donor and Citadel CEO Ken Griffin, will make rare public statements about their business practices during the congressional hearing on how Reddit users are trading on retail platforms rallied to squeeze hedge funds that had bet against shares of the video game retailer and other companies.

Griffin will appear before the Democratic-led House finance panel alongside Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit CEO Steve Huffman and Keith Gill, a known Reddit user and YouTube streamer under the name Roaring Kitty which promoted its investment in GameStop.

The five men were at the center of the saga that rocked Wall Street in January, which prompted several federal and state agencies to investigate.

With critical Wall Street representative Maxine Waters at the helm and Alexandria Ocasio-Cortez and other progressives in the 54-member panel, the audience promises to be tough, with tough questions for Tenev, Griffin and Plotkin in particular.

Once or twice a year an audience lends itself to a good theater … Thursday’s audience is one of those rarities, wrote Ian Katz at Alpha Partners in Washington, adding that the hedge fund tycoons would likely be the main targets of Democrats.

A spokesperson for Waters declined to comment ahead of the hearing. In prepared testimony released Wednesday, witnesses generally agreed that the GameStop saga was unprecedented, but they all said there was no fault on their part.

Graphic: Rise and fall of GameStop Rise and fall of GameStop –

Graphic: GameStop comments soared on Reddit’s Wallstreetbets –

The Reddit rally has resulted in massive volatility from GameStop and other stocks, prompting post-trade clearinghouses that guarantee trades to call billions of dollars in additional collateral from Robinhood and other trading venues. detail.

In response, many suspended their purchases of the affected stocks on January 28. Lawmakers on both sides were outraged and questioned whether trading venues were siding with hedge funds at the expense of Mom and Pop investors.

New York-based Melvin Capital, one of many hedge funds that had bet GameStops shares would fall, suffered massive losses as the stock soared through January 28. Citadel invested $ 2 billion in Melvin on January 25. [L1N2KM064]

Lawmakers will likely focus on whether Robinhood made it too easy for small investors to take risks, analysts said. Its trade deals with the market makers to which it routes orders can also be a hot topic, they said, as well as whether this payment model for the flow of orders may disadvantage customers.

Robinhood says few of its clients engage in risky transactions, while paying for the order flow often helps clients get better prices than trades on the stock exchange.

Tenev, Griffin and Plotkin are likely to be grilled on the short sale, and whether Robinhood’s decision to suspend the purchase of the affected shares was influenced by Citadel or Griffin, which majority owner of Citadel Securities, a market maker of Robinhood.

All parties have denied any attempt by Citadel or Citadel Securities to influence the policies of Robinhoods.

Yet legislative action is unlikely once the fireworks have dispelled, said Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.

We doubt Washington can advance an acute political prescription when broader concerns about the structure of the stock market and economic equality complicate the conversation.

Reporting by Michelle Price and Pete Schroeder; Edited by David Gregorio

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