After GameStop (GME) debacle, US financial policeman puts Robinhood on the grill

Long Live the Free Market – Yesterday afternoon, executives from Robinhood, Citadel and Reddit testified before the US Congress as part of the GameStop (GME) investigation. The three leaders were joined by Keith Gill, aka DeepFuckingValue , the de facto leader of WallStreetBets.

Robinhood, a flawed business model ?

Against all odds, the commission members did not overwhelm the CEO of Reddit or Mr. Gill . Citadel and Robinhood were at the heart of the debates. First, the stakeholders gave their version of the facts, which occupied most of the audience. Keith Gill revealed that he invested $ 50,000 in GameStop (GME) in June 2019 and generated tens of millions of dollars in profit.

Questions then turned to Robinhood’s controversial stop to trading in GameStop shares. Robinhood’s model is simple. Users do not pay fees and the company is remunerated by directing financial flows to a market maker . In the same way as a business introducer , Robinhood receives a commission on the flows it directs to its clients.

However, there is a time lag between when orders are sent by Robinhood and when the user’s account is debited . It is this delay of 48 hours which would have forced the interruption of the negotiations. Robinhood did not have the funds to complete new buy orders. This pitfall in the very operation of the application led Senator Anthony Gonzales to declare:

“I believe that a vulnerability has been clearly exposed in your business model. We cannot live in a world where our constituents can have their stocks liquidated if you don’t have enough capital. ”

Anthony Gonzales US Senator

The commission is therefore openly positioned in favor of individuals and Reddit. This position is not so surprising given the consensus that has emerged from the early days across the US political spectrum. Indeed, Democratic Senator Alexandra Ocasio Cortez , like her conservative counterpart Ted Cruz , spoke out in favor of individuals in the name of the free market.