‘
“What I want to show here is that we have come dangerously close to the collapse of the whole system, and it seems that the public is completely unaware of it, including Congress and the regulators.”
”
This is Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc., giving details on CNBC on Wednesday about the dire situation in which the market stood at the end of January when individual investors on social media platforms banded together for a handful of heavily shortened to send shares, including bricks. and mortar video game retailer GameStop Corp. GME,
and film chain AMC Entertainment Holdings AMC,
to sky-high levels, with shockwaves registered throughout the market.
As Peterffy explained in an interview with MarketWatch last month, the so-called short press that shook clearance houses and forced a number of brokers to try to protect themselves by increasing margin requirements and restricting the trading of certain stocks to create greater chaos prevent. in markets.
Peterffy’s comments come before a highly anticipated afternoon hearing on Thursday where the financial services committee will provide for managers of Robinhood Market, Melvin Capital and Kenneth Griffin, who own the hedge fund Citadel LLC and Citadel Securities. Social media industry Reddit and Keith Gill, an independent investor who suddenly gained fame during the GameStop affair, will also be interviewed about their roles in the insane trade that gripped the public and briefly helped set up a mini-sale in to awaken the Dow. Jones Industrial Industrial DJIA,
the S&P 500 SPX,
and the Nasdaq Composite COMP,
indexes.
Clearance houses play an important role in markets from equities to derivatives. They stand between the parties in a trade to guarantee payment if one of the two is revoked.
Read: GameStop madness puts cleaning houses in the spotlight as investors weigh systemic risk aversion
The important piece of plumbing work in the financial market was at the heart of the matter, Peterffy said.
Peterffy said that existing protocols around short-circuiting could lead to a disaster in the stock market because the shares of the company targeted by short sellers in a number of cases exceed the total outstanding shares.
‘So if the price goes up, the shorts of the brokers are standard, the brokers have to give themselves coverage, [and] it’s raising the price, so the brokers are failing the clearinghouse, and you have a complete mess that is practically impossible to sort out, “the Interactive Brokers chairman told CNBC.” So that’s what almost happened. ‘
In a prepared testimony before his trial, Robinhood CEO Vlad Tenev gave his perspective on the action in January: ‘What we experienced last month was extraordinary and the trading restrictions we imposed on GameStop and other stocks were necessary to enable us to continue to meet the deposit requirement we pay to support customer trading on our platform. ”
Robinhood CEO says the brokerage, which sees itself as a provision for the average investor, said the daily risk at risk, or VAR, rose by nearly 600% from $ 202 million on January 25 to $ 1.4 billion by 28 January.
Robinhood Markets Testimony to House Financial Services Committee
The increase in its deposit requirements has forced Robinhood to raise additional $ 3.4 billion in capital to enable customers to resume normal trading on its platform, the chief executive said.
Sign out: Reddit millionaire investor tells Congress ‘I’m just as bullish as ever’ over GameStop’s turnaround
Peterffy said lawmakers and regulators can solve the current problems of short selling by asking more often about short selling and increased margin requirements, or leveraged financing, for shortened stocks.