SAN FRANCISCO – Key players involved in the trading frenzy centred on GameStop shares told sceptical United States lawmakers yesterday that their actions are above board and in line with ordinary stock market business.
Founders of free stock-trading app Robinhood and online forum Reddit are among those to testify at a House of Representatives financial services committee hearing.
Unprecedented recent volatility – with moves of up to 400% for shares in the GameStop video game store – prompted calls for regulators to review the role of social media, hedge funds and trading platforms, which some allege manipulate the market.
The situation has pitted Wall Street’s hedge funds, which often take “short” positions on shares they see as likely to fall, against a social media-driven move to “squeeze” big institutional investors.
“I am not trying to throw anyone under the bus,” Robinhood co-founder and chief executive Vlad Tenev said as he is barraged with questions during a virtual hearing held in online video format.
“All I can say is Robinhood played it by the books.”
Significant losses
Keith Gill, an amateur investor renowned at Reddit’s WallStreetBets forum for snapping up GameStop shares early and cheap, testified that he bucked market wisdom based on his own research and not because he was out to rattle hedge funds.
“The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous,” said Gill.
“When I wrote and spoke about GameStop and social media with other individual investors, our conversations were no different from people in a bar or golf course, or at home talking or arguing about a stock.”
The YouTube star, one of the traders at the centre of the mania, told lawmakers he grew up playing video games and still believes GameStop “has the potential to reinvent itself as the ultimate destination for gamers”.
Gill, known as Roaring Kitty online, also denies manipulation at the hearing, which is titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide”.
Gabriel Plotkin, founder and chief investment officer at Melvin Capital Management, said in his testimony that the fund did not manipulate trading.
He added that Melvin abandoned its short positions on GameStop with “significant losses” when the shares jumped US$17 (RM68) to a peak of US$483.
Plotkin contended people on Reddit forums were encouraging trade in GameStop as a way to punish the hedge fund and that “many of these posts were laced with anti-Semitic slurs directed at me and others”.
US Treasury Secretary Janet Yellen said officials will be “looking carefully” at the market volatility that came after a social-media-fuelled buying frenzy for stocks that were shorted by hedge funds, including of GameStop.
The wave of buying boosted the share price of struggling companies, including GameStop and movie theatre brand AMC Entertainment.
But the share prices fell sharply when the frenzy subsided.
The events led to some retail investor apps, such as Robinhood – which said its goal is to “democratise finance for all” – to limit trading in some of the most volatile stocks last week, drawing the ire of critics. – AFP, February 19, 2021
