What is going on guys? I hope you just got some fuel in your system. I got some rocket fuel got some food, we're gon na be in for a long session. It's 12 p.m, we'll probably be here to at least 5 p.m. Of course, we have to see what is ever is going on with this um.

Is there any? Let's see if there is uh, i can't hear anything. Can you guys i was trying to find it hang in there. You got ta love that um anyway uh, especially in discord. If you guys can hear me what is the best way like vicod, i'm having that same issue with noise, uh, nothing is coming through for me, uh chat.

Let me know uh live stream starting soon. Okay, i mean i have their symbol and everything i will be adding my own commentary to it. Um don't have audio no sound okay, so it sounds like they're having issues. Please.

Let me know if there's something i need to do to switch it, but in the meantime don't forget ride is getting above that 7165 area. We were talking about here's a look at that um right, huge, huge bounce off today's low. I feel lucky to be a part of it, but i cannot capture gangs. I i put gamestop up.

I thought that would be of interest. That's in the top right amc is in the top left. Gamestop is actually having a pretty rough day. It's down.

Let's go! I'm super excited to see how this plays out. It'll be it'll, be fun. I have that up, though uh, so hopefully they can figure out their own details. There we go.

The chair is authorized to declare a recess of the committee at any time. As a reminder, i ask all members to keep themselves muted when they are not being recognized. This will minimize disturbances. While members are asking questions of our witnesses, the staff have been instructed not to mute members, except where a member is not being recognized, and there is inadvertent background members are also reminded that they may only participate in one remote proceeding at a time if you are Participating today, please keep your cameras on and if you choose to attend a different remote proceeding, please turn your camera off.

Today we will make an exception and allow members from texas to participate without their video function of texas. It's a mess in texas right now. Anyone in ex in texas, my heart, goes out to be recognized during the hearing. Please identify yourself by name to facilitate recognition.

I would also ask that members could be patient. It's kind of funny she's doing to chair this because she's been known to have some weird financial dealings herself, so this hearing is entitled game stopped, who wins and loses when short sellers, social media and retail investors collide? I now recognize myself for three minutes to give an opening statement good afternoon. Everyone. This hearing will be the first in a series of hearings by the committee to examine the recent market volatility involving gamestop and other stocks.

I want to know how each of the witnesses here today and the companies they represent, contributed to the historic trading events in january this recent market volatility has put a national spotlight on institutional practices and wall street firms and prompted discussion about the evolving role of technology And social media in our markets, these events have illuminated potential conflicts of interest and the predatory ways that certain funds operate, and they have demonstrated the enormous potential power of social media in our markets. They have also raised issues involving gamification of trading potential harm to retail investors and the business models of apps, with retail investors as their users all. This is why we have witnesses from many of the key players here to testify today, including witnesses representing wall street firms. Melbourne capital and citadel social media media company reddit trading, app robinhood, as well as one of the retail investors involved in subsequent hearings.

We will hear from regulators and other experts regarding these events, including why don't prank, rulemakings related to short-selling disclosures, were never implemented. Many americans is the volume good now that the system is stacked against them and no matter what wall street always wins. In this instance, many retail investors appeared motivated by a desire to beat wall street at its own game and given the losses that many retail investors have sustained as a result of volatility in the system, there are many, whose beliefs that the system is rigged against them Has been reinforced, others have noted that there are winners and there are losers in every trade in our financial markets. Our role as the financial services committee is to ensure fairness in our financial markets and system, robust protections for investors and accountability of wall street.

Today we will hear firsthand from the witnesses regarding these events. The hearing will be an opportunity for this committee to get the facts about the role each of the entities of the witnesses represent played in the events we are examining today. Now i recognize the ranking member of the committee, the gentleman from north carolina, mr mchenry, for five minutes well, uh. Thank you, madam chair and um.

Let me just begin by saying i believe americans are far more sophisticated, informed and capable than people in dc. Give them credit for when i called for this hearing last month. I wanted this to be a fact-finding mission. We have speculation, we have headlines and finger-pointing, but we don't have the facts.

We need facts, not just the salacious bits or nasty comments on reddit and look. There's plenty of that we need the facts today. Now some on the left are already floating new restrictions or things to quote protect these so-called uninformed retail investors who, in their eyes, don't know the difference between a dozen point and the dow jones without congress, telling them a doji coin, a it's that these average everyday Investors are pretty darn sophisticated. There is wisdom to the crowd, so, let's zoom out on that idea.

Just for a moment, the gamestop story represents a larger truth. A fundamental change is happening like never before everyday investors can communicate access, more information and work collectively to move markets all in real time. Technology is fueling. This revolution congress cannot put technology back in the box.

Gamestop is the culmination of years of pinup frustration that frustration is now paired with faster, cheaper and better technology. Consider for a moment that, for every story of someone being able to pay off their student debt from the gamestop trade or conversely, every store is somebody who lost money. There were stories of those who said they were investing in protests in protest. They would gladly risk losing money just to prove a point and now and while no one should ever risk investing money that they cannot afford to lose.

Let's tell the truth of why someone would do something like that. The sad truth is the k-shaped economy. Is nothing new in our catholic markets, because the structural core of our regulations, literally enshrined in equity policies, like the credit investor definition, blatantly pick winners and losers if you're, wealthy, you're good to go and if you're not you're getting too dumb to be trusted with your Own money, so a privileged few get to invest alongside ivy league endowments getting early access and private markets to the greatest returns of the last two generations, but not so fast for every average everyday investor. In the eyes of our government, you need to be protected, protected from your own decisions, protected from your own money, protected for more opportunities, so you're left with a savings account which pays no interest, and if i'm sorry about all that sound like it's, there are speakers And other people on the zoom call like messing it up like that echo and stuff.

That's definitely not. On this end, the dynamics of gamestop happens. It's time we get serious about equity and ownership in the american economy. We should live in a world where the construction, worker or uber driver trading on robin hood has the same access to equity chairs and robin hood itself as a white doge movement same goes for reddit and reddit users by the way both contributed to its success.

Why can't both share in its future success? So i'll conclude with a reminder for some of my colleagues who want to regulate more and more the 1980s massachusetts state regulators barred citizens from investing in the wall. Street journal called the latest in a cascade of stocks of high technology companies that occurred that year. What ipo is too risky in the eyes of the government apple so instead of shutting the american public out through new regulations, new forms of taxation or so-called protections, let's use this opportunity instead to side with them. So i'll begin where i started, americans are far more sophisticated, informed and capable than folks in dc give them credit for, and it's time our securities laws treat them.

That way. I look forward to the hearing and i go back this guy has such a good point and um. I don't know how all of you feel, but that's how i feel about mine. Like the i feel like the success of wall street.

That's reddit. It really is because people that's like where they take on the derogatory names like there is amazing due diligence and points given in the reddit and wall street does it was like oh you're way too stupid to handle your own money? No we're not like. There are people who shouldn't be involved in the market, yes i'll, give them them than that. But that's what the reason this does so well right now is because there's that animosity people on wall street view, everyone else is like way way too dumb to handle their own money.

And that's what this for me ellis. The embodiment of this fight is is the fact that no i'm an adult i'm in charge of my own financial health. Let me do what i want to do and that's how i view this entire fight now is like wall street they're. Just like smug about it is the chief executive officer of melbourne capital management lp, which held a significant start position in game, stop and other stocks and experience significant losses due to its positions.

Steve huffman is the chief executive officer, co-founder of reddit a social media platform which is home to the subreddit wall street best where retail investment is just trading. A large number of members discuss the purchase of gamestop and other stocks, which experience volatility. Mr keith gill is a retail investor who posted red youtube regarding investing in gamestop and other stocks. Jennifer gaul is a director of financial regulation studies at the caso institute.

Without objection, your written statements will be made part of the record. Each of you will have five minutes testimony sherman here it was my. I believe that there are only three minutes of democratic opening statements with the idea that the subcommittee chair on the democratic side would be called as well. That's what i was told by your staff.

Well, thank you very much um. If uh, that is the order that has been organized, i will cease my introductions and i will call on you, mr sherman uh, to please go ahead and make an opening statement. Thank you. Oh thank you.

Thank you. Back in the day, the law school professor would create an exam and weave together a story that would exemplify each of the issues in that area of the law. But never did the professor. Do it as good job as the gamestop saga, which identifies most of the issues facing our capital markets short selling? Could there be limits or required additional disclosures? What do we do with market participants, whether they be on reddit or in on wall street, who are shorting a stock or buying a stock for the purpose of influencing its price? What is this payment for order flow model, and what does it mean when some participants get best execution and some get enhanced best execution? Give price enhanced best execution and all are all traders being treated fairly and is payment for order flow free to the consumer? We need to look at the plumbing where it takes two days to settle a transaction, but also, why is it the broker's capital, rather the customer's capital, that is posted during the two-day period? And, finally, we need to look at the gamification and glorification of high-frequency training.

I thank the chairwoman for the time and i hope that in the months to come, we have several hearings to explore these issues and then we're able to pass legislation this year to deal with each of them, and i yield that. Thank you. The chair now recognizes the chairman of the subcommittee of oversighted investigations, the gentleman from texas, mr green, for one minute. Thank you very much, madam chair.

I greatly appreciate the opportunity to express some concerns that i have. It is a fact that citadel of securities has paid over 100 million dollars in penalties, and my concern is this: it deals with whether we can allow a market makers, profits from misleading clients and improperly trading ahead of clients, to become something as simple as the cost Of doing business, the risk of punishments or violations must always exceed the rewards to deter the risk. I'm concerned, and my hope is, that we'll get some additional intelligence on how these punishments have impacted. The rewards that have been received i yield back.

Thank you very much and i will go back to the introduction of our witnesses. I left off with jennifer's cup uh director of financial regulation studies at the cato institute. Without objection, your written statements will be made part of the record. Each of you will have five minutes to summarize your testimony.

You should be able to see a timer on your screen that will indicate how much time you have left and a time will go off at the end of your time. I would ask you to be mindful of the timer and quickly wrap up your testimony. If you hear the chime now before we begin with your oral testimonies, i would like to swear in the witnesses. I will call each of your names individually to respond.

Would you please raise your hands? Do you solemnly swear to affirm that the testimony you will give for this committee in the matters now under consideration will be the truth, the whole truth and nothing but the truth so help your god, mr chanel, mr griffin. Thank you. Mr plotkin, mr blacken, pluck no way i apologize. I do.

Thank you, mr huffman, mr gayle. Mr mr, thank you very much. Let the record show that all of the witnesses answered in the affirmative. We will now begin with their oral testimonies.

Mr jeanette, you are recognized for five minutes to present your oral testimony. Chairwoman waters ranking member mchenry members of the committee. My name is vlad teneb and i'm the chief executive officer and co-founder of robinbuddy. Thank you for the invitation to speak about robinhood and the millions of people we serve almost eight years ago, beijoubat and i founded robinhood.

We believe, then, as we do now, that the financial system should be built to work for everyone, not just a select few. We dreamed of making investing more accessible, especially for people without a lot of money. The stock market is a powerful wealth creator uh. I would like you to use your limited time to talk directly to what happened january and your involvement in madam chair, madam chair.

The witness has the opportunity to to to give their own testimony. Excuse me for your question. Um. Yes, of course, completely railroaded.

We created robinhood to economically empower all americans by opening financial markets to them. I was born in bulgaria, a country with a financial system that was on the verge of collapse. At the age of five, i immigrated with my family to america in search of a better life. I have benefited from all america has to offer and robinhood's mission to democratize.

Finance for all has a very special significance. For me, the ravenous platform allows people from all backgrounds to invest with no account minimums and zero commissions, contrary to some very misleading and highly uninformed reports. We see evidence that most of our customers are investing for the long term with features like fractional shares dividend reinvestment, recurring investments, our customers can start with small amounts and grow their investments in blue chip stocks and etfs over time. You've always recognized the responsibility that comes with helping people, invest we'll continue to enhance our educational platform to help customers, no matter where they are in their financial journey.

Hundreds of free educational resources are available to everyone on our learn website. Right now, while markets fluctuate, this tells me our business model is working for everyday americans. The total value of our customers, assets on robinhood exceeds the net amount of money they have deposited with us by over 35 billion dollars. This this tells me our business model is working for everyday americans, the robin hood community.

Many people say that robinhood has helped them to pay car loans, reduce student loan debt meet daily bills, save for the future and we're proud to serve them. You've invited me today to discuss the events of last month and i welcome this opportunity. In late january, many brokerage firms saw a massive increase in trading activity in a handful of stocks. Prices were moving dramatically day to day even hour to hour, one specific day.

January 28th proved to be a completely unprecedented event. The spike in trading activity and volatility meant that robin securities, our clearing broker, had to hold the line and post additional firm capital as collateral to support our culture deposit demands to put it in perspective. On january 28th, our daily deposit requirement was 10 times more than on january 25th. As a result, robin hood securities, along with many other firms, imposed temporary trading restrictions on certain securities.

We begin allowing limited buys of these securities the following day and we have since lifted the restrictions entirely. There are two points i want to make clear about these temporary restrictions. First, robinhood securities put the restrictions in place in an effort to meet increased regulatory deposit requirements. Not to help hedge funds, we don't answer to hedge funds.

We serve the millions of small investors who use our platform every day to invest. Second robinhood immediately secured additional funds altogether through capital raising and other measures. We've increased our liquidity by more than three billion dollars to cushion ourselves against increased collateral requirements and related market stress in the future, despite the unprecedented market conditions in january. At the end of the day, what happened is unacceptable to us to our customers? I'm sorry - and i apologize please know that we are doing everything we can to make sure this won't happen again, and i want to highlight one more thing: the existing two-day period to settle trades exposes investors and the industry to unnecessary risk.

There is no reason why the greatest financial system in the world cannot settle trades in real time. I believe we can and should act now to deploy our intellectual capital and our engineering resources to move to real-time settlement together. We can solve this before. I close, i want to sincerely thank the millions of customers who continue to use robinhood to access the markets every day.

We are grateful and committed to you, members of the committee. I appreciate the opportunity to answer your questions. I don't know about you guys, but that seemed obviously he's in insanely nervous, but it seems scripted and it was an infomercial for robin hood, but i want to know what's going on the plumbing issue. He has a valid point that the plumbing issue is horrific in the recent market.

U.S capital markets are the envy of the world. Our nation's ability to allocate capital to its best and highest use creates jobs, drives innovation and fuels our economy. America's retail investors play an important role in our capital markets. According to gallup, about 55 of americans own stock right now, citadel securities, as the largest market maker in the u.s equities market, executes more trades after retail investors than any other firm.

As i will discuss shortly, citadel securities played an important role in meeting the needs of retail investors during the week january 24th. Before doing so check out this greg perfectly clear, we had no role in robin hood's decision to limit trading in gamestop or any of the other meme stocks. I first learned of robin hood's trading restrictions. Only after they were publicly announced.

All of us in sales securities are committed to healthy functioning of the u.s equities markets. I first participated in the financial markets as a retail investor in the late 1980s, while attending college i traded stocks and options for my dorm room. My passion for investing led to my founding of civil 1990 today citadel, is one of the world's leading alternative investment managers. Capital partners include pension plans, colleges, hospitals, foundations and research institutions in 2002.

My partners and i founded citadel securities today citadel securities, is one of the world's permanent market makers. We've been a leader in using technology to transform our markets, particularly for retail investors. Citadel securities invest hundreds of millions of dollars each year to serve the needs of our customers. In the last week of january, the importance of this investment was on full display.

During the period of frenzied retailed, equities trading citadel securities was able to provide continuous liquidity every minute of everything we get those eyes. Man they're, just like piercing, no blanks unable or unwilling to handle heavy volumes. Citadel securities was there. On wednesday january 27th.

We executed 7.4 billion shares on behalf of retail investors. Put this into perspective that day, civil securities executed more shares for retail investors than the entire average daily volume of the entire u.s equities market in 2019.. The negative of the orders right of the social securities reflects the confidence, the retail brokerage community and our firm's ability to deliver in all market conditions and finders cores the critical importance of our resilient and stable system. I could not be more proud of our team at citadel securities, my colleagues who were committed to ensuring that the interest of america's retail investors served during this extraordinary period.

Once again, i appreciate the opportunity to appear today and i look forward to answering your questions. Thank you, mr griffin. Mr plotkin you're now recognized for five minutes to present your oral testimony. Well, there was no blink griffin there for you, chairwoman waters, ranking member mchenry, the members of the committee.

I would like to thank you for this opportunity to share melvin capital's perspective on the recent trading activity. Melvin blew up. I am the founder and chief investment officer of melbourne capital, i'm humbled by these unprecedented events. My investors, and also many investors on all sides, have experienced losses.

I'm here today to share my own personal experience and to be helpful in this conversation. I understand that part of the focus of this hearing is the decision of stock trading platforms to limit trading and gamestop. I want to make clear with the outset that melvin capital played absolutely no role in those trading platform decisions. In fact, melvin closed up.

All of its positions in gamestop days before the platforms put those limitations in place. Like you, we learned about those limits from news reports. Tesla made clear at the outset that, contrary to many reports, melvin capital was not bailed out. In the midst of these events, citadel proactively reached out to become a new investor similar to the investments others make in our funds.

It was an opportunity for citadel to buy low and earn returns for its investors. If and when our fund's value went up to be sure, melvin was managing through a difficult time, but we always had margin access and we were not seeking cash infusion totally, not bailed. I grew up in a middle class family in portland maine. I went to a public high school.

I studied hard and got into a good college upon graduation. I did not have a job today, i'm married with four children and my time is spent with my family and on melbourne capital, which i founded six years ago. I named melvin after my grandfather, who ran a convenience store. I wanted the firm to represent his values, integrity, hard work, taking care of customers and employees and commitment to excellence.

Melvin capital manages a hedge fund. Investors such as academic institutions, medical research and other charitable foundations. Pension funds, retirees and others invest with us. We have 36 employees and hundreds of investors and i feel a personal duty to all of them.

Melvin specializes in the consumer and technology sector, including companies like gamestop, autozone and expedia. Most of our investments are long. In other words, we buy stock in companies that create jobs, grow the economy and develop new products for consumers. We do this after extensive fundamental research, sometimes literally for years, when our research convinces us that a company will grow relative to expectations.

We make a long-term investment when our research suggests a company will not live up to expectations and its stock price is overvalued. We might short a stock like with our long positions. Our practice is to shorter stock for the long term. After extensive research, we also short stocks, because when the markets go down, we have a duty to protect our investors capital.

There are laws governing shorting stock and, of course, we always follow them. In addition, it's very important to understand that absolutely none of melbourne's short positions are part of any effort to artificially depress or manipulate down the price of a stock. Nothing about our short possession prevents a company from achieving its objectives. It is just melvin's view about whether it will specific to gamestop.

We had a research supported view well before the recent events. In fact, we've been short gamestop since melvin's inception six years earlier, because we believed and still believe, that its business model, selling new and used video games in physical stores is being overtaken by digital downloads through the internet and that trend only accelerated in 2020. When, because of the pandemic, people were downloading video games at home. As a result, the gaming industry had its best year ever, but game stuff had significant losses.

In january 2021, a group on reddit began to make posts about melbourne's specific investments they took information contained in our sec filings and encouraged others to trade in the opposite direction. Many of these posts were laced with anti-semitic slurs directed at me and others. The post said things like it's very clear: we need a second holocaust. The jews can't keep getting away with this, others send similarly profane and racist text messages to me.

In the frenzy during january, gamestop stock rose from 17 to a peak of 483. I did not think anyone would claim that the price of any relationship is the intrinsic value of the business. The unfortunate part of this episode is that ordinary investors, who were convinced by a misleading frenzy to buy games up at 100, 200 or even 483, have now lost significant amounts. When this frenzy began, melvin started closing out its position and game stopped by the loss, not because our investment thesis had changed, but because something unprecedented was happening.

We also reduced many other melbourne positions at significant losses, both long and short, that were the subject of similar posts. I personally humbled by what happened in january, investors in melbourne suffered significant losses. It is now our job to earn it back, and while i do not think that anyone could have anticipated these events, i've learned much from them and i'm taking steps to protect our investors from anything like this happening in the future. I look forward to answering your questions.

Well, that's melvin. Capital total, not robot person. That's a 100 human in front of you trust me, mr huffman. You are now recognized for five minutes to present your oral testimony.

Thank you. I am chairwoman, mr ranking member honorable members of the committee. My name is steve huffman. I am the co-founder and ceo of reddit and i'm pleased to talk with you today about how reddit works and what we have seen on our site.

In the past few weeks. Reddit's mission is to bring community and belonging to everyone in the world. It started in 2005, as a single community has since evolved into a vast network of many thousands of communities. They range from standard topics like news sports politics to internet culture, to support.

For example, our unemployment community has become a source of support for hundreds of thousands of americans who have turned to reddit after losing their jobs during the pandemic. Our communities are created and run by our users. Because of this we describe reddit as the most human place on the internet, though we are small compared to the largest platforms. Our communities provide an online home for millions of people every day.

I'd like to share a bit about how content moderation on reddit works. Reddit's moderation system starts with our content policy the platform-wide rules which all communities must follow. Among other things, these rules prohibit hate, harassment, bullying and illegal activity on reddit, and they are enforced by reddit's anti-evil team, which is composed of engineers, data scientists and other specialists. This team also ensures the integrity of the site.

We have continuously honed our methods to stay ahead of bad actors to protect reddit from manipulation, spam and other threats. This team searched high and low for the specific comment mentioned in the previous testimony or anything like it. The closest we could find was a single comment that received no votes and was deleted within five minutes. Such speeches not tolerated on reddit.

We will of course investigate any further claims of this nature. Centralized moderation is common, but reddit additionally uses a governance structure akin to a federal democracy with the aforementioned policies and teams represent the federal government and the communities themselves represent states all communities or subreddits are created by users that we call moderators. They set the community's rules, which may be as strict as they like as long as they are not in conflict with the platform-wide policies. They have a variety of tools of enforcing these rules independently moderators are not paid employees, but rather users who are passionate about their communities.

They have the context and judgment to make decisions. No algorithm. Could the members of each community contribute both the content itself and the ranking of it by voting up or down on any post or comma? Unlike other platforms, where submission has a built-in audience through the author's follower account every piece of content on reddit, no matter how famous the author starts at zero and has to earn its visibility through their votes, the community itself enforces not just the explicit rules of their Community, but also the unwritten rules that define their culture. This layered approach has helped our users create the most authentic communities online.

The specific community we'd like to talk about today is wall street bets. It's important to understand that wall street bets is one of many finance and investing related communities on reddit. This particular community specializes in higher risk higher reward investments than what you might find in other financial communities on reddit, with such names as personal finance, investing in financial independence. I will stress that wall street vets is first and foremost a real community.

The self-deprecating jokes, the means the crafts at times. Language all reflect this. If you spend any time on wall street bets you'll find a significant depth to this community exhibited by the affectionist members show one another they're just as quick to support us, a fellow member. After a big loss as they are to celebrate after a big game a few weeks ago, we saw the power of community in general and of this community, in particular, when the traders of wall street bets banded together at first to seize an investment opportunity, not usually Accessible to retail investors, but later more broadly, to defend all retail investors against the criticism of the financial establishment, with the increase in attention wall street bets, unsurprisingly, face to surge in traffic and new users at reddit.

Our first duty in these situations is to our communities, and our role in this moment was to keep wall street bets online working around the clock. We scaled our infrastructure made technology changes to help this community withstand the onslaught of traffic, and we acted as diplomats to help resolve conflict within wall street vets leadership. We have, since analyzed activity in wall street in wall street bets to determine whether bots foreign agents or other bad actors played a significant role. They have not in every metric.

We checked the activity in wall street bets was well within normal parameters and its moderation tools were working as expected. We will of course, cooperate with valid legal requests from federal and state regulators. That said, we do believe that this community was well within the bounds of our own policies. To conclude, i would like to reiterate why it is important to protect online communities like wall street's, best wall street vets may look sophomoric or chaotic from the outside, but the fact that we're here today means they've managed to raise important issues about fairness and opportunity in Our financial system, i'm proud to use reddit to do so.

Thank you and i look forward to your questions. I mean i get that that guy took too much adderall but like he had some very good points um. I also like how he the melvin capital, like anti-semitic thing. He smashed it back in their face, saying that there was no evidence of that awesome.

Thank you. Chairwoman waters member mchenry members of the committee, i'm happy to discuss with the committee my purchases of gamestop shares and my discussions of their fair value on social media. It is true that my investment in that company multiplied in value many times for that. I feel enormously fortunate.

I also believe the current price of the shares demonstrates that i've been right. I am not an institutional investor, nor am i a hedge fund. I do not have clients and i do not provide personalized investment advice for fees or commissions. I'm just an individual whose investment in gamestop and posts on social media were based upon my own research and analysis.

I grew up in brockton massachusetts. My family was not wealthy. My father was a truck driver and my mom a registered nurse. I was one of three kids and the first in my family to earn a four-year college degree when i graduated from stonehill college in 2009., so it was not a good time to be looking for a job from 2010 to 2017.

I worked a few startup companies, but there were significant periods when i was unemployed. I took an interest in the stock market and even though i had very little money, i used those times to educate myself and learn more about investing in 2019. After nearly two years unemployed, i accepted a marketing and financial education job at massmutual, my wife, caroline and i were thrilled that i had an income and benefits. My job was to help develop financial education classes.

That advisors could present to prospective clients. I was not a stock broker or a financial advisor, i did not talk to clients and i did not recommend stocks for them to buy. Before and after i joined mass mutual i studied and followed stocks. One of those was gamestop in early june of 2019.

The price of gamestop stock declined below what i thought was its fair value. I invested in gamestop in 2019 and 2020 because, as i studied the company, i became more and more confident. In my analysis, two important factors based entirely on publicly available information, gave me confidence that gamestop was undervalued. First, the market was underestimating the prospects of gamestop's legacy business in overestimating the likelihood of bankruptcy.

I grew up playing video games and shopping at gamestop and i plan to continue shopping there. Gamestop stores still provide real value to consumers and reliable revenue for gamestop. Second, i believe that gamestop has the potential to reinvent itself as the ultimate destination for gamers. Within the rapidly growing 200 billion dollar gaming industry gamestop has a unique opportunity to pivot toward a technology driven business by embracing the digital economy.

Gamestop may be able to find new revenue streams that vastly exceed the value of its business. I am hardly the only person who has advocated these points 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 in a golf course, or at home talking or arguing about a stock hedge funds and other wall street firms have teams of analysts working together to compile research and analyze shares of companies. Individual investors do not have those resources.

Social media platforms like reddit, youtube and twitter are leveling the playing field. The idea that i use social media to promote gamestop stock to unwitting investors and influence the market is preposterous. My post did not cause the movement of billions of dollars into gamestop shares. It is tragic that some people lost money and my heart goes out to them, but what happened in january just demonstrates again that investing in public securities is extremely risky.

As i said earlier, i consider myself and my family fortunate with our investment when the stock price broke 20. In december, i knew my investment was a success. I was so happy to visit my family in brockton for the holidays. The money will go such a long way for us.

We had an incredibly difficult 2020.. Most difficult was the tragic and unexpected loss of my sister sarah in june. I am grateful to be in a position to give back to and support my family. As for what happened in january, others will have to explain it it's alarming, how little we know about the inner workings of the market, and i am thankful that this committee is examining what happened.

I also want to say that i support retail investors right to invest in what they want when they want support the right of individuals to send a message based on how they invest. As for me, i like the stock, i'm as bullish as i've ever been on a potential turnaround for gamestop and i remain invested in the company. Thank you cheers everyone. Thank you, mr gill.

Let's go, mr gill, you are now recognized for five minutes to present your oral testimony, waters, ranking mecca, mchenry and distinguished members of the committee on financial services. My name is jennifer schulp and i am the director of financial regulation studies at the cato institute center for monetary and financial alternatives. Thank you for the opportunity to take part in today's hearing before addressing the gamestop phenomenon. Specifically, i'd like to talk about the participation of retail or individual investors in our public equities markets.

Retail participation has ebbed and flowed over the years, but the recent upward trend accelerated sharply during the pandemic. Most point to zero commission trading, but several other factors also likely attracted retail investors, including fractional share trading low account, minimums and easy app-based platforms more time at home during the pandemic, probably even played a role. Retail participation in our equities markets is important. The fact that retail investors behave differently from institutional ones and differently from each other can be particularly valuable in times of market stress.

In fact, individual investors may have helped stabilize the market in march 2020.. Importantly, investing in the stock market also provides a path to wealth. For individual investors, but stock ownership traditionally has been skewed towards the already wealthy and it is highly correlated with race, education and age retail investors. Making up this new surge are different.

Recent research by the finra investor education foundation and newark at the university of chicago found that investors who opened accounts for the first time in 2020, were younger, had lower incomes and were more racially diverse. These new investors also held lower account balances. This may pretend, as one of the researchers noted quote, a shift towards more equitable investment participation. These new opportunities for individuals to grow their wealth should be welcomed and expanded, not restricted now i'll turn to gamestop.

At the outset, i will note that it is difficult to analyze the impact of the trading in gamestop and other stocks, because many facts are unknown, but some things seem clear. Importantly, the temporary volatility in these stocks did not present a systemic risk to market function, as the treasury department recognized, the market's core infrastructure was resilient during high volatility and heavy trading volume. This is not surprising, despite the huge trading volume and rapid increase in value. Only a small part of the market was affected and spillover effects on the wider market were mild and short-lived.

The fact that gamestop traded temporarily and perhaps still trades above fair estimates of the company's value is not by itself a reason for concern. Stock prices move in and out of alignment all the time and markets are no strangers to bubbles. If a company is valued by the market differently than a review of its fundamentals suggests, it might indicate that the analysis is missing, relevant information about a company's prospects, or it might indicate that the company's stock price is due for a correction. The market's mechanisms, including the tool of short selling, generally work well to handle these circumstances, stepping in to prevent trading, whereas stock price moves.

Contrary to conventional wisdom, could deprive the market of important infra information. The sec among a host of others is reviewing the relevant trading and conducting a study of the events. The sec will have access to far more information that has been made publicly available and i believe it has the tools necessary to address any harmful misconduct that may have occurred. I cannot opine on whether any regulatory changes are warranted.

On this incomplete record, i tend to believe the answer will be no in light of the minimal impact on the market's function, but as regulators learn more, there may be areas identified for improvement. By no means, though, should these events lead to restrictions on retail investors, access to the markets. Thank you and i welcome any questions that you may have. Thank you.

I now recognize myself five minutes for questions. The market volatility surrounding gamestop and other securities has highlighted how many people feel that the cards are stacked against them and that market participants, like our witnesses, hide the ball. Mister denive, you explained that robin hood restricted transactions in certain securities to meet demands coming from your clearinghouse and yet on january 28 you represented to the media that there was no liquidity problem. Isn't it true that being concerned about having enough capital uh to meet deposit requirements? Isn't that a liquidity problem, or could you just answer yes or no chairwoman waters? I appreciate the opportunity to address that yes ago.

We always felt comfortable with our liquidity and the additional capital that robin hood. Please answer yes or no. We always i don't have time. I just need a yes or no answer.

I i stand by my statement. The additional capital we raised wasn't to meet capital requirements or deposits reclaiming my time. This liquidity problem had real consequences for your customers, but i wonder if they were all that surprised. Between december 2019 and december 2020, robinhood customers experienced monetary losses due to system outages.

Customer accounts were reportedly compromised. The firm repeatedly failed to testify its best execution obligations and it misled its customers regarding its revenue sources. It seems, retail investors often get a bad deal at robinhood, mr tanev, also or while you testify today, they quote robin hood's. Customers benefit greatly from payment for order flow quote unquote.

In december 2020, the sec charged robinhood for not disclosing that it was getting uh paid to send customer trades to citadel securities and other market makers and for not seeking the best terms for its customers. Orders robinhood provided such inferior trade prices. It costs your customers over 34 million. Is your testimony after hood paid uh? Is it your testimony after robin had paid the sec 65 million to settle those charges that this conflict of interest is in your customers best interest? Yes or no chairwoman waters? First, let me say: regulatory compliance is at the center of everything that we do.

We've made mistakes in the past, i'm not claiming that yes or no to that question so citadel securities is an important counterparty nobody's denying that the reason that gentlemen can answer yes or no, i'm reclaiming my time. Meanwhile, mr griffin, citadel's role in this event also raises significant questions for policy makers. Citadel securities pays robin hood tens of millions of dollars to process trades by robin hood's customers. This relationship gives citadel enterprise key non-public information as to direction and volume of trades by retail investors.

Your firm makes use of private exchanges called dark pools and other uh off exchange trading to trade large sizes without moving the market against you. In fact, at some point last month, 50 of all trades occurred in dark pools or via otc off exchange trades. Your business strategy is designed intentionally to undermine market transparency and scale profits from companies and other investors. One problem, though mr griffin is that we don't really know how central your forum has become to the capital markets.

Mr griffin does citadel handle 47 of the u.s listed retail value. Please yes or no excuse me, uh chairman what percentage i couldn't hear that number 27 percent so truman waters to the best? Yes, okay, so the odd that's, my knowledge will be handled in excess of roughly 40 percent of all retail value. Thank you very much for reclaiming my time, mr griffin. On january 27th, the citadel executes 7.4 billion shares for retail investors, which would be more trades than the average daily volume of the entire united states equities market in 2019.

Yes or no, i'm chairman waters. That was my written and oral testimony. Thank you very much uh, and with that i now recognize the distinguished ranking member mr mchenry, for five minutes for questions all right. Thank you.

Uh mr uh tanev. I'm gon na come to you first uh. I i just want to get to what happened on that day in january. So let's take a step back here.

Let's take a step back in the middle of the night, according to what i've heard, uh you and interviews say, and based off that conversation with your compliance team, you decided to halt the buying of game stock stock. People were furious, we'll get into the regulations and the settlement parts of that today we will get to that, but there's this is what i think needs to be answered about your decision. Why did robin hood restrict the buying, but not the selling of gamestop, and why do folks get locked out on the bicep only ranking member mchenry? That's a good question. She had the opportunity to address that uh.

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 uh buying uh.

Oh buying, why early? That's? Why buying security, but why, moreover, uh preventing customers from selling is a very difficult and painful experience where customers are unable to access their money? So we don't want to 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, i imagine it would have been significantly worse if we prevented customers from Selling okay, so let me ask this: question: is payment for order flow legal yeah? Yes, payment for order flow is legal and regulated, and is this disclosed to those users of your app yes, payment for order flow is disclosed in multiple places and, moreover, order flow enables commission free trading and that's why it's become the industry standard model, as other brokerages Have replicated our model and started offering commission free trading to their customers as well? Okay, so so to that, to this greater point of what happened that day and the model that you're using uh, let's be crystal clear. That decision you made to restrict the buying, but not the selling of gamestop, was based. What 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 robin hood securities. President.

All right, let me get in this question. You want to democratize uh finance. You want to open up uh wall street to retail investors. You say that robin hood's mission is to democratize finance for all.

So, let's talk about that, so yes or no uh can a robin hood customer invest in robin hood, the company robin it's currently a private company, so that that's not possible no yeah. And so you need to tell me that the people that use your platform that make you a successful company and i would say, directly contribute to your company's exponential growth and success. They don't get the same. Access to equity shares as a robin hood, employee or your institutional investors, is that correct.

Apparently, that is correct. Yes, all right, miss schulte! Let me pivot to you. Why is that? Why is why? Is it that everyday investors on the robin hood app people that i would argue, contribute to success, can't invest in robin hood itself. The sec limits a lot of investment in private companies to those folks that are known as accredited investors and to become an accredited investor.

You have to have a wealth need a wealth test of earning at least two hundred thousand dollars a year a year or having a net worth of over a million dollars. The vast majority of people in this country don't meet that standard and are unable to invest in most private companies. Okay, so let me let me just clear this uh, mr tinef. I don't blame you for, for the restriction you put on your customers not being able to invest in equity.

I'd like to have more opportunity to ask mr gill his thoughts on this, but let me just say this: i don't i don't fault you for the inequitable regulatory structure that dc has created, but i think we need to clear this up. Final thing, madam chair, i have a uh uh before the record, i'd like to submit a letter from the dtcc, which is the clearing company uh, that that was not on the panel today uh and their uh. Your staff has this all right. Thank you all and look forward to getting to the facts: um other members, ms maloney chairwoman, waters and ranking member mchenry for convening this hearing.

I hope today's hearing sheds light on how our markets are working or in many cases, are not working for smaller investors and ways. We can fix that. The events of late january saw tremendous volatility and stock prices that were totally divorced from market fundamentals. The whole enterprise was viewed by some as a giant video game trading stocks instead of properties and monopoly money, but it's not all fun and games, because people can lose their life savings, their hard-earned cash and tragically last summer.

We know of at least one suicide linked to potential trading losses beyond those possible losses. The actions of robin hood and other trading platforms during the gamestop frenzy caused confusion, anger and undermined investor confidence in the fundamental fairness of our capital markets. None of this is healthy for our markets, our good for investors. What makes markets work fairly is when everyone knows the rules and that the rules remain consistent and predictable and are enforced, but because of robin hood's actions too many customers did not get that predictability.

Many retail investors woke up on january 28 to find that they could no longer buy and sell stocks the same way they could the days prior and they were being treated differently than other market participants who could still buy and sell those same stocks. So i don't blame them for thinking that things were stacked against the little guy. Mr tinub, you stated in your testimony that robin hood restricted trading for certain securities, including gamestop, in order to meet your financial requirements with your clearing house. But when i go to robin hood's website and the blog post, you initially released on january 28th, your financial requirements with your clearing house are not mentioned.

You only mention market volatility and when i review the robin hood customer agreement, you don't include specifics on how and when you may decide to ris to restrict trading which you did and you don't include any language or disclosures regarding your capital requirements. It only includes vague language that at any time and in its sole discretion, robin hood can restrict trading. In other words, you seem to reserve the right to make up the rules as you go along, so i i have two questions for you. First, do you think you owe your customers more disclosure and transparency than you gave them and second 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 congresswoman.

I appreciate the question um so to answer the second question: look i'm sorry for what happened um i apologize and i'm not gon na say that robin hood did everything perfect and that we haven't made mistakes in the past. But what 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 robinhood as an organization will learn from this and improve to make sure it doesn't happen again and i'll make sure of that. Well, i expect we will experience future events with increased volatility and robinhood's recent actions appeared.

Arbitrary is, which is why i don't blame customers for feeling treated unfairly. Your your trading restrictions came out of the blue, and your communication was not clear. So my next question, mr tanev, looking forward what operational changes is robinhood, making to better respond to future market volatility, to improve transparency with your customers and to ensure retail customers, don't get the rug pulled out from under them at the last minute? Thank you for that question. Congresswoman we'll be committing to reviewing absolutely everything about this, but the 3.4 billion dollars that we raised, i think, goes a long way to cushioning the firm from future market volatility and other similar black swan events.

And i believe that, even throughout this process, we improved our risk management processes and strengthened them so that the experience customers had that week was much improved from thursday. Thank you. Thank you, madam chair, and i'd like to welcome our witnesses for testifying. Today.

That's the late january market volatility that took place along with what i hope is a broader discussion on market functions and their effect on everyday investors. Since i was very first elected, i have advocated for america's main street investors and worked tirelessly to ensure that all americans, especially those low and big income favors, are giving the investment choice, access and affordability that they deserve. Retail investors are the strength of our stock market, and i have fought throughout my career for their best interests in the financial markets, and this hearing today is no different. The advances in financial technology that we've witnessed in the last decade have improved the way that americans and our businesses perform financial activities in just the past year.

We have seen retail investors market participation more than double, and i think this is great, i believe in the wisdom of the retail investor, and i will say i believe in the first amendment too. This increase is attributed to robin hood and other trading brokerages, who are lowering account, minimums permitting fractional chair trading and implementing zero commission trading. It's critical that um congress focus on reducing barriers, reducing barriers to market participation, which is rarely uh. I rarely want to do.

Let me sadly say and allowing main street uh americans access to the financial instruments that can create long-term investment savings. All of these changes have given millions of americans the ability to invest better for their families and their future. My hope is that the majority does not use this hearing as an excuse to once again add new federal regulatory burdens to an industry that is already heavily regulated and that will prevent people from participating in our capital markets, letting existing regulations work is key, not burdening Everyday investors with new and more costly barriers to entry, mr tinnett, it appears at the time your company did not have enough money to meet the collateral requirements for that level of trading by your customers and your view. A collateral requirements by from the dtcc unreasonably high was the amount of trading on your platform unforeseeable or what your company under capitalized, given his risk profile.

Good question congresswoman, so uh this event was a five sigma event, which is a one in 3.5 million event. To put that in context, there have only been tens of thousands of stock market days in the history of the u.s stock market, so one in 3.5 million event basically is unmodelable. That said, we can learn from it and in this particular case, our risk management processes worked really to keep us in compliance with all of our deposit requirements and collateral requirements.