Summary With that, we close the six-hour hearing on the legal and financial ramifications of the massive buy-up of stocks that threatened to upend the US financial system. Main issues brought up today include the gamification and ease of access for trading brought by Robinhood’s app, and the mental health and financial implications of that. Repeatedly the suicide was mentioned of one Robinhood user who believed he had racked up hundreds of thousands of dollars in debt. Lawmakers say Robinhood needs better protections and customer service for users who need support. Many lawmakers also mentioned payment for order flow, a controversial practice pioneered by . Through the practice, stockbrokers get a kickback for essentially selling the ability to execute trades. Tenev said in the hearing that around 50% of Robinhood profit comes from payment for order flow. Some legislators questioned whether it should be allowed, while others, in particular Alexandria Ocasio-Cortez, suggested such gains should be passed on to customers rather than pocketed by Robinhood and its rich cohorts like hedge fund managers. Still others suggested taxing these transactions in general. Rashida Tlaib said a 0.1% tax on financial transactions would discourage high risk trading while raising more than $800bn for taxpayers in the next ten years alone. Maxine Waters, chairwoman of the committee which assembled the hearing, said there will be at least two hearings investigating the GameStop incident. AOC: Robinhood should pass more profits to its users Alexandria Ocasio-Cortez also zeroed in on the payment for order flow financial model Robinhood uses in her questioning. Earlier during questioning, Tenev revealed that more than half of Robinhood’s revenue comes from payment for order flow, a controversial practice in which stockbrokers get a kickback for essentially selling the ability to execute trades. Ocasio-Cortez noted that the practice obscures the true costs of trade from users. “Would you be willing to commit today to voluntarily pass on the proceeds of the payment for order flow to Robinhood customers?” she asked. Tenev avoided answering the question, saying that Robinhood is a “for-profit business and needs to generate some revenue to pay for the costs of running this business”. Tlaib: "Our folks are tired of bailing you out every time you screw up" Rashida Tlaib had some strong words for hedge fund owner Ken Griffin and for financial institutions at large. Tlaib called for a financial transaction tax, saying that taxing Wall Street at just 0.1% would raise $800bn over 10 years. She cited the power outages in Texas and the poverty in her own district in Michigan that could be helped with such a tax. Likely referencing the bailout of banks in 2008, Tlaib said it is unfair finance executives always seem to make it out of these financial implosions unscathed. “Our folks are tired of bailing you out every time you screw up and gamble with their retirement money,” she said. Representative flays Robinhood for its poor customer service related to suicide of young trader Sean Casten of Illinois again highlighted the suicide of Alex Kearns, a 20-year-old amateur trader who committed suicide after his Robinhood app told him he owed more than $730,000 on losses. The family of Kearns is suing Robinhood after “misleading communications” led the young man to believe he had sustained huge market losses. He called the company’s customer service hotline three times but was unable to communicate with anyone at the company. Believing he had bankrupted his family, he later committed suicide. “This was a man who was 20 years old,” Casten said. “He was not allowed to buy a beer, but he was allowed to take on $730,000 in options. Your mission is to democratize finance, but regulation exists to protect people like Alex Kearns.” He asked Tenev about when Robinhood began offering options trading (2018) and noted that the company’s revenue model grew exponentially after adding options trading - a more complex and volatile form of investment. “There is an innate tension in your business model between democratizing finance, which is a noble calling, and being a conduit to feed fish to sharks,” Casten said. Casten repeatedly admonished Tenev for Robinhood’s lack of a customer service hotline. He took out his cell phone and called Robinhood’s customer service number, playing back what users hear when they call. The message - presumably what Kearns heard in his desperation - was an automated voice telling the caller to download the Robinhood app before hanging up. Representative questions whether it is reckless to gamify investment Cindy Axne of Iowa targeted Tenev with questions about the Robinhood app’s design and the consequences of gamifying trade. She asked who truly stands to benefit from the rise of Robinhood, which Tenev has repeatedly asserted aims to “democratize” investment. “Your clients are not your customer - the users are the product, your customer is sitting next to you - it’s companies like Citadel securities that stand to make a fortune on retail order flow,” Axne said. Axne noted that Robinhood incentivizes inviting friends to the app and gamification of trading, “adding gaming elements that look like gambling.” Robinhood took from its customers to boost its own business model, lawmaker alleges Michael San Nicolas of Guam, a Democrat, congratulated the small investors who orchestrated the short squeeze: “Robinhood made that possible,” he said. But he also questioned Tenev about the $3bn shortage, and where the money borrowed to cover it came from. Tenev said he got $3bn from venture capitalists, which San Nicolas argued means Robinhood materially benefited from the shareholders. San Nicolas said Robinhood’s Silicon Valley ethos of “move fast and break things” led it to value scale over anything else. “That’s where I have a serious concern,” he said. “Your business model causes you to take extraordinary risks, and you took from customers to protect your position. That is very, very troubling.” Tenev admits Robinhood did not have the collateral to back the huge increase in trade Vlad Tenev admitted during questioning on Thursday that Robinhood halted buying on the platform because it did not have the funds to back the huge influx of trading in the Reddit frenzy. Robinhood is required to place a deposit using its own funds at a clearinghouse to cover risks until trades are settled between a buyer and seller. On 28 January, the company was informed by its clearing house, NSCC, that it had a deposit deficit of approximately $3bn – up from $124m just days before. Anthony Gonzalez, a Republican from Ohio, asked if Robinhood indeed had that $3bn of collateral at the time. “At that moment, we would not have been able to post the $3bn of collateral,” Tenev said. Gonzalez said that proves Robinhood was “unprepared to protect his constituents and customers from non-consensual liquidation” and “barely avoided disaster”. “In a sense, I love your company,” Gonzalez said. “At the same time, I believe a vulnerability was clearly exposed.” Reddit CEO is asked if financial advice on the forum can be trusted Steve Huffman, CEO of Reddit, conceded in questioning on Thursday that users on the forum responsible for the GameStop buy-up are an “eccentric” bunch but that they did not breach any of the platform’s terms of service. He said financial advice on Reddit, in fact, is better than what is seen on TV because each post has been vetted by its voting process, which requires endorsement by hundreds and even thousands of users before it is widely visible. Huffman: On Reddit you’re seeing retail investors who are giving authentic advice based on their knowledge, and you would not call into question positions they may hold before they talk about it on television. Are Robinhood users better off than the average investor? One issue that has come up repeatedly in today’s hearing is what Robinhood has to offer consumers, besides ease of entry into the investment space. Lawmakers’ questioning has offered a rare look into the profit model of Robinhood and just how much customers have made and lost on the app. Jim Himes, a Democratic representative of Connecticut, asked Robinhood CEO Vlad Tenev whether customers would make more if they had bought a low-cost S&P 500 index fund rather than individual stocks on Robinhood’s app. Tenev said that Robinhood customers have made $35bn in profits, but is unwilling to say what rate of return that represents. Himes said that number means little without more context. Did Reddit’s coordinated buying represent market manipulation? Expert says no The meteoric rise of GameStop stocks was fueled largely by a frenzy on Reddit community r/WallStreetBets. Arkansas Republican Representative French Hill asked Thursday whether that constituted “market manipulation” - artificially impacting the price of a security or otherwise influencing the market for personal gain. Keith Gill, who is also speaking on Thursday’s panel, has been sued in a class action lawsuit accusing him of exaggerated claims and misrepresented posts as part of his role on Reddit in kicking off the GameStop market frenzy, which personally netted him more than $30m. “I think there’s little evidence at this time that there’s any false or deceptive conduct taking place,” said Jennifer Schulp, director of financial regulations studies at the Cato Institute speaking on the forum. She did say due to the anonymous nature of Reddit it is possible there is some “deceptive behavior” that could not readily be determined. Other have argued that Robinhood’s freezing of GameStop stocks in response to the buy-up itself represented market manipulation.