House Financial Services Committee Chair Maxine Waters said Thursday her committee would dig into the conduct of hedge funds and private funds, in the aftermath of market volatility surrounding Robinhood’s decision to prevent its users from buying certain stocks.
Robinhood is a no-fee investment app that prevented its users on Thursday from purchasing new stock in certain entities, including GameStop, AMC Entertainment, and BlackBerry, among others.
The California Democrat said hedge funds have engaged in predatory conduct and she intends to hold them accountable.
“As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors,” Ms. Waters said in a statement. “We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility and we must examine the market in general and how it has been manipulated by hedge funds and their financial partners to benefit themselves while others pay the price.”
<p”>Robinhood’s decision to restrict certain stock purchases on Thursday morning came amid a groundswell of users flooding their platform following calls on social media sites, including Reddit, to pump the prices of various stocks sent various stocks skyrocketing. GameStop’s stock, for example, began the month under $20 per share, but was above $300 per share at Wednesday’s market end of trading.
“We continuously monitor the markets and make changes where necessary,” said Robinhood on its blog. “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.”
Investors benefiting from the rising stock prices raised objections to Robinhood’s action, and federal lawmakers signaled they would intervene. Republicans and Democrats alike signaled support for probing the unusual restriction on trading and volatile stock prices, including liberal Rep. Alexandria Ocasio-Cortez, New York Democrat, and Sen. Ted Cruz, Texas Republican.
No date for the hearing has yet been set.
• Disclaimer: The author is a Robinhood user.
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