This is what you can expect during the conference hearings on GameStop and Robinhood

The players

Robin Hood: The popular commission-free online broker was a favorite tool of a new class of retail investors who integrated social media into their investment decision-making.

As the firm’s app has exploded in popularity over the past few years, it came under fire because it was not straight with customers about how it made money and for intermittent interruptions that did not allow users to trade. Last month’s decision to buy shares in GameStop Inc. restricting just like a social media campaign to inflate the stock has led to accusations that the company is trying to sabotage the stock to help short sellers.

However, Robinhood’s executives said in an affidavit that Robinhood stopped buying the stock because users overwhelmingly placed a one-time, long bet on the extremely volatile stock, often with borrowed money, prompting major calls for collateral from the Robinhood. broker’s clearing house. . Co-CEO Vlad Tenev will testify Thursday.

Citadel Securities: The security wholesaler was founded by billionaire Ken Griffin, who will also testify on Thursday. It is one of Robinhood’s largest sources of revenue, as it pays brokers for the privilege of executing their clients’ orders. Market makers like Citadel Securities practice this ‘order flow payment’ because they earn a very small profit from every transaction they execute – the spread between the buying and selling price of a security – which is on average slightly larger than what they pay to get out. to perform. the trade.

Melvin Capital: A hedge fund that apparently incurred huge losses after betting against GameStop by selling the shares. According to the Wall Street Journal, the fund was rescued by co-hedge funds Point72 and Citadel. The hedge fund Citadel is also partly owned by Ken Griffin, but is not otherwise affiliated with Citadel Securities. Gabriel Plotkin, chief executive, will appear before the committee on Thursday.

Reddit: A popular social news platform where GameStop shares are heavily promoted. Regulators have searched the site to determine if users are promoting such meme shares that are acting illegally, such as deliberately lying about a security to manipulate its price. Reddit CEO and co-founder Steve Huffman will testify Thursday.

Keith Gill: An independent investor who regularly reported on his success in investing in GameStop and other memo shares.

What questions will be asked??

Lawmakers will be eager to hear if there was any conspiracy by Robinhood, Citadel Securities and Melvin Capital to stop the protest in GameStop shares. Citadel Securities and Robinhood have publicly denied this, but expect committee members to thoroughly investigate the matter.

Ben Koultun, director of research at Beacon Policy Advisors, predicted that a very wide range of issues would emerge during the trial that motivated Robinhood to restrict trading.

“What I’m looking for is whether a narrative emerges from the hearings that provides a way forward for regulatory or legislative changes, or whether members are more concerned about their own political talking points that they could pack into a press release,” he told MarketWatch .

Koulton said it was likely to be the latter, as a few weeks after the volatility of stock stocks disappeared, no coherent story emerged about what the episode told policymakers about the state of the financial markets.

Democrats have exploded Robinhood in the past for features that encourage regular use of the app, which observers have suggested as gamification, but following the volatility of GameStop, high-profile Democrats were much more eager to attack hedge funds, using short sales and Robinhood for blocking new purchases of GameStop than they had criticized online brokers because it was too easy and attractive to speculate in financial securities.

Republicans, on the other hand, may see the wisdom in tackling Wall Street and Silicon Valley in the summary, but Koulton predicted that they would mostly work to repel the Democrats’ attacks and called for stricter regulation of the market structure or practices such as short selling.

“There has been a more populist tendency towards the Republican Party lately, but I doubt they will be eager to go after a Republican megadonor like Ken Griffin,” he said.

What will be the effect of the trial??

Without dual agreement on the problems the GameStop saga reveals in the US financial markets, it is unlikely that the hearings will serve as much as political theater, according to Brian Gardner, head of Washington’s policy strategy at Stifel.

‘The trial will yield good TV, but in terms of the impact of the GameStop episode’s policy changes, we’ll pay more attention to the Senate Bank’s hearing on Gary Gensler’s appointment to the Securities and Exchange Commission management. , as the SEC will take the lead in making policy changes, ‘he wrote in a Tuesday letter to clients.

“Congress may be jaw-dropping the SEC in specific changes, but regulatory action rather than legislation is the likely path forward,” he added, pointing out that the trial in Gensler could be scheduled for next week.

The most likely issue the SEC should focus on in its regulatory review is the practice of paying for order flows, which critics say creates a conflict of interest between the brokers ‘clients and the brokers’ brokers accepting the payment of.

However, regulators have conducted extensive reviews of this practice in the past, particularly following a 2014 Senate inquiry. “Payment for order flows has been disputed in the past and the SEC has decided not to make any major changes,” Koltun said, adding that supporters of the practice say it has enabled brokers to eliminate commissions, which average investor benefits. “Citadel and order flow payment have too many strong proponents in the DC atmosphere to change that.”

Sen. Sherrod Brown, a Democrat from Ohio and chairman of the Senate Banking Committee, said he also intends to hold a hearing “on the current state of the stock market” but has yet to set a date.