After GameStop, Regulations Are Coming for Wall Street – But Will They Reign in Everyday Investors Instead?
When a band of Redditors sought to change the world — or at least change the way Wall Street operates — it didn’t exactly go as planned. While members of the subreddit r/WallStreetBets did initially drive GameStop stock prices up and cause hedge fund short sellers to lose billions, many retail investors also lost as GameStop plummeted from $483 per share on Jan. 28 down to less than $54 the first week of February, according to a CBS News report.
The short sellers at Melvin Capital received a bailout from hedge fund Citadel while retail investors were left licking their wounds if they invested too late and didn’t get out soon enough. At one point, retail trading platform Robinhood stopped investors from buying GameStop shares along with other stocks on a list dubbed “meme stocks” and promoted heavily on the WSB subreddit.
House Financial Services Committee Seeks to Investigate Hedge Funds, Robinhood, Retail Traders and Policies
Now, retail investors may have another chance to make a difference during a House Financial Services Committee virtual hearing on Thursday, Feb. 18. The hearing, titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide,” will explore short-selling, online trading platforms, the gamification of finance and the impact these factors may have on capital markets and retail investors in the future, Yahoo! News writes.
Congresswoman Maxine Waters, chair of the House Committee on Financial Services, has announced that she wants r/WSB member Keith Gill, known on YouTube as Roaring Kitty, to attend.
Gill was one of the key Redditors who helped drive the price of GameStop stock up in an enthusiastic frenzy. Gill reportedly gained — and then lost — millions during the highly volatile trading period, ultimately coming out in the black with $7.6 million from a $54,000 initial investment, largely made in 2019 when GameStop was trading for just $4 a share, CBS News reports.
According to a press release issued by the House Committee on Financial Services, other witnesses at the hearing will include:
- Vlad Tenev, CEO of Robinhood Markets, Inc.
- Kenneth C. Griffin, CEO of hedge fund Citadel LLC
- Gabriel Plotkin, CEO of Melvin Capital Management LP
- Steve Huffman, CEO and co-Founder of Reddit
Prior to the announcement, Waters had said in an MSNBC interview, later cited by Politico, “I am concerned about whether or not Robinhood restricted the trading because there was collusion between Robinhood and some of the hedge funds that were involved with this.”
In her announcement regarding the hearing, Waters stated, “Hedge funds have a long history of predatory conduct and that conduct is entirely indefensible.”
Sen. Elizabeth Warren had previously stated in a CNN interview that the U.S. Securities and Exchange Commission should better regulate hedge funds.
Will the Hearing Make a Difference?
If any changes come about as a result of the hearing, it could mean new definitions for market manipulation. But would that work against retail investors, who collectively caused Wall Street hedge funds to lose billions? Depending on how the committee and the SEC opt to redefine market manipulation, it could change the face of social media as it pertains to retail trading.
On the other hand, it could also make it harder for platforms like Robinhood to restrict trading in the future. Warren and Waters are also pushing for increased disclosure requirements for hedge funds, especially those that take large short positions, according to The Hill.
However, some experts don’t believe the hearing will change business as usual on Wall Street. “Even if Robinhood did what Sen. Warren says it did and improperly restricted individuals’ ability to trade certain stocks, the securities laws already contain the provisions necessary to charge the company,” David Slovick, a partner at Barnes & Thornburg and former senior enforcement attorney at the SEC told The Hill. “I doubt very much that this saga will result in any changes to the securities laws or the SEC’s rules.”
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