properties and monopoly money. but it is not all fun and games, because people can lose their life savings and much tragically, last summer we know of at least one suicide linked to potential trading losses. beyond those possible losses, the actions of robinhood and other trading platforms during the gamestop frenzy cause confusion, anger, and undermined investor confidence in the fundamental fairness of our capital markets. none of this is healthy for our markets were good for investors, but makes markets work fairly. it is when everyone knows the rules and that the rules remain consistent and predictable, and are enforced. but because of robinhood's actions, too many customers did not get that predictability. many retail investors woke up on january 28 find it could no

longer buy and sell stocks the same way they could the days prior. they were being treated differently than other market participants who could still buy and sell those same stocks. i don't blame them for thinking that ends were stacked against the little guy. mr. te youn stated that robinhood restrictedev, certain securities in order to meet your financial requirements with your clearinghouse. when i went to robinhood's website and the blog post he released on january 28, your financial requirements are not mentioned. you only mentioned market volatility. when i reviewed the robinhood customer agreement, you don't include specifics on how and when you may decide to restrict training, which he did. he didn't include any language

or disclosure regarding your capital requirements. it only includes fake language that at any time and in its sole discretion, robinhood can restrict trading. you seem to reserve the right to make up the rules as you go along. i have two questions for you. do you think you owe your customers more disclosure and transparency than you gave them? second, do you believe your lack of candor with your customers might have contributed to the wild speculation and confusion that resulted in the aftermath of your trading restrictions? mr. tenev: congresswoman, i appreciate the question. to answer the second question, look, i'm sorry for what happened. i apologize and i'm not going to

say that robinhood did everything perfect and that we have not made mistakes, but when i commit to is aching sure that we improve from this, we learn from it, and we don't make the same mistakes in the future. robinhood as an organization will improve, to make sure it does not happen again. i will make sure of that. rep. maloney: i expect we will experience future events with increased volatility, and robinhood's recent actions appeared arbitrary. which is why i don't blame customers for feeling treated unfairly. your trading restrictions came out of the blue. your communication was not clear. my next question, looking forward, what operational changes is robinhood making to better respond to future market volatility to improve transparency with your customers, and to ensure retail customers don't get the rug

pulled out from under them at the last minute? mr. tenev: thank you for that question, congresswoman. we be committing to reviewing everything about this. the $3.4 billion we raised goes a long way to cushioning the firm from future market volatility and other similar black swan events. i believe that even throughout this process we have proved our rick -- risk management processes and strengthen them, so that the experience customers had was much improved from thursday. rep. maloney: thank you. mr. tenev: we continue to learn and improve upon this. rep. maloney: miss blackner, you are recognized. but i would like to welcome our witnesses for testifying. the market volatility that took place, along with what i hope is a broader discussion on market functions and their effects on

everyday investors. when i was first elected i have advocated for america's main street investors and worked tirelessly to ensure that all americans, especially those low and middle income sabers, are getting the access and affordability they deserve. retail investors are the strength of our stock market. i have fought throughout my career for their best interests in the financial markets. this hearing is no different. the advances in financial technology we have witnessed in the last decade have improved the way americans and businesses performed financial activities. in just the past year we have seen retail investors' market participation more than double. i think this is great. i believe in the wisdom of the retail investor, and i believe

in the first amendment too. this increase is attributed to robinhood and other trading brokerages who are lowering account minimums, permitting fractional share trading, and enabling zero-commission trading. it is critical that congress focus on reducing barriers, reducing barriers to market participation -- which is a -- it really wants to do, set to say. and allowing main street americans access to the financial instruments that can create long-term investment savings. all of these changes have given millions of americans the ability to invest for their future. my hope is that the majority does not use this hearing as an excuse to once again add new federal regulatory burdens to an industry that is already heavily regulated and will prevent people from participating in our

capital markets, whether existing regulations work is key, not burdening customers with barriers to entry. mr. tenev, it appears your company did not have -- collateral requirements unreasonably high? was the amount of trading on your platform unforeseeable? or was your company undercapitalized? mr. tenev: thank you for the question, congresswoman. this event was a one in 3.5 million event. to put that in context, there have been thousands of stockmarket fees in the history of the u.s. stock market. one in 3.3 5 million event is basically on -- un-modelable.

our risk management processes worked to keep us in compliance with all of our deposit requirements and collateral requirements. rep. wagner: i realize you are doing a full review of your practices and such. i encourage you to do that, and certainly communication with more investors is going to be keto diet. let me say, as the ranking member on the inclusion subcommittee, i am delighted to be speaking with ms. jennifer schultz. representative mchenry and i have stressed having qualified women in finance. i am pleased to have you here today. we now know that it was the daily collateral demands set the national security clearing corporation that was the reason robinhood had to temporarily restrict trading. can you briefly explain the purpose of these capital

requirements and their relationship to ensuring our market function? did you see any broad failures of market function? >> thank you for the compliment. the collateral requirements here served the function to provide security for the stock selling process. while an investor thinks that what is happened is they have owned a stock on the day they make a trade, it really takes two days for the settlement process to clear. during that time the brokerage firm, the brokerage firm on the others and reviewed the risk of that not clearing. the collateral requirements mitigate risk the brokerage firm not be able to make good on its promises to sell or buy.

i did not see any -- the collateral requirements were large, but understandable. i think it functioned largely correctly. rep. wagner: my time has expired. thank you all for your testimony. rep. waters: thank you. >> madame chairman, point of order. just to remind people too, when they are not speaking, mute themselves. there is a lot of feedback when a question is asked and the mic stays open. rep. waters: thank you very much. i would hope that every member would certainly do that. mr. chairman, you are recognized for five minutes. >> thank you very much. we have come to expect things on the internet to be free.

when you are not paying for it, it is not free. you are the product, someone else the customer. and you go onto facebook and it is free, you are the product being sold. your information is sold to god knows who. we now have a system where we are telling investors it is free to invest in -- to buy and sell stock. there are two ways to pay the folks involved in the wall street for buying and selling stock. when is a commission, and you know what it is. so, we discourage investors a little bit from buying and selling stock, because they have to pay a commission and they know they are paying a commission. the other way to do it is by giving them a worse execution. never there is a stock being purchased and sold, the market

maker, perhaps citadel, might be willing to sell the stock for $10.05, but will buy it for only $10. the difference is five cents. the issue is whether robinhood and other people who are being told to get it for free are really getting it for free. mr. griffin, you are a market maker. you pay some brokers for order flow don't pay others for order flow. so, you pay for order flow, you are not making as much on the transaction. you have to pay some of that back to the broker. that is hidden -- the amount of that is hidden from the customer.

sec rules require that people get the best execution. i have learned that there is best execution and enhanced pricing. if you get an order from fidelity, and you get an order from robinhood, is that customer getting -- is the robinhood customer getting as good a price as the fidelity customer? mr. griffin? mr. griffin: i believe it is an excellent question. the execution quality we can provide as measured in terms of price improvement is heavily related or correlated to the size of the order that we receive. so, if i were to speculate -- rep. sherman: don't tell me there are other factors involved and take us down another road. i'm asking you a clear question. assuming the same size of order, one comes in from robinhood, one

comes in from fidelity, is it not true that one is going to be getting an enhanced, best execution, and the other is going to get best execution? as i was trying to explain, because the robinhood order comes from a community of traders who tend to trade in smaller size. rep. sherman: that isn't my question sir. you are evading my question by making up other questions. let me repeat. two identical orders come in. same quantity. one is for robinhood, one is for fidelity. what happens? mr. griffin: the quality of the execution varies by the channel of the order. this is a commonly understood phenomenon. channels matter. when you get a mortgage, a mortgage for jp morgan has a different rate of interest. rep. sherman: reclaiming my

time, sir. who gets the better deal? one that comes from a broker who is being paid for order flow and one not? can you testify that, on balance, there is no difference, assuming the same size of the order? mr. griffin: as i said earlier, size of the order is only one factor. rep. sherman: you are doing a great job of wasting my time. if you are going to filibuster, you should run for the senate. everyone else i have talked to in this industry says when you pay for order flow, you get -- when your broker is being paid for order flow, you get a worse execution. otherwise you are in the peculiar circumstance where you are making more money on a fidelity transaction than a robinhood transaction. which would be an absurd practice. rep. waters: the gentlemen's

time has expired. mr. lucas, you are recognized for five minutes. >> thank you, madame chairman, for holding this hearing, and thank you to the witnesses. it has been reported that approximately 20% of market volume is not available to retail customers, which i think it's fascinating, considering that is up from 2019. that is an overall positive development. more liquidity, more stability. it is important to increase market access for retail customers. i don't want to disrupt that if we can. i would like to try my first question to esther -- to mr. ten ev. you explained in your testimony robinhood's relationship with market makers is important. robinhood's ability to offer commission-free trading.

expand on how that process benefits the everyday investor. expanding general on that, if you would. mr. tenev: how would be happy to. as i mentioned, payment for order flow enables commission-free trading. prior to robinhood changing the industry standard model to be commission-free, most brokers collected a commission on top of the payment for order flow on every transaction. robinhood routes to market makers, including citadel execution services. have seven across equities and options. we route without consideration for payment for order flow. all payment for order flow arrangements are uniform and our system routes orders based on who provides the best execution quality for our customers. the reason citadel gets a

relatively high percentage of our customer order flow is because they provide superior execution quality for our customers. that is first and foremost the most important consideration we look for. how are our customers getting the best execution quality? if another market maker work to improve upon the execution quality that citadel provides on any subset of orders, our system is set up to automatically route more traffic to that market maker. rep. lucas: continuing down this line. clearly this one of the things my colleagues and the public have a strong interest in. having lived through dodd-frank, sometimes major things can offer -- can occur. mr. griffin, can you elaborate on how payment for order flow provides -- there it is the best price to the retail investor from the market maker's perspective?

as you outlined? mr. griffin: absolutely. as the ceo of robinhood just t forth clearly, the orders that are allocated amongst the market makers, they are allocated principally on price. we have fought for 15 years to make that the basis by which orders are allocated, because we strongly believe citadel is able to provide a better execution for retail orders. in the long run, make a huge investment in our team and technology to do so. how is it that we are able to provide her execution quality? because exchanges are limited in their ability to do business by regulatory mandate. changes, by law, have a 1/10 size market, which means they are less competitive than they otherwise could be.

>> what are you doing? mr. griffin: excuse me? rep. lucas: that wasn't either one of us. continue, mr. griffin. mr. griffin: we are able to share our trading document with retail customers and give them a better price, and we are able to make payments for order flow to firms like robinhood that allow them to have lower or no commission, and of particular note we are able to help robinhood and other brokers they exchange fees to the exchanges at the time of execution. this is been very important to the democratization of finance. it has allowed the american retail investor to have the lowest execution costs they have ever had in the history of the u.s. financial markets. rep. lucas: in the dodd-frank process the chairman and i went through, it was much discussion about margin requirements.

give us a discussion about when you discovered you had a $3 billion additional margin call? mr. tenev: thank you, congressman. i believe the full play-by-play of that situation was described in detail in my wooden testimony. -- my written testimony. rep. lucas: my time has expired, unfortunately. rep. waters: the gentlemen's time has expired. mr. meeks, you are recognized. >> thank you, missed chair. let me ask a question to mr. 10 f -- tenev. i have been burned once or twice in the market. since i have been a member of congress one of the things i recall is the financial crises

in 2008. we thought that opening the market up, that people had adjustable-rate mortgages, they were able to get into the market, people who may not have been before. lava disclosure had not happened. there was no documents to look at what their incomes were or anything of that nature. those adjustable rates happened, any individuals lost their homes, many people who bought those mortgages or who initially agreed to those mortgages sold them immediately, because they did not know that the people would not be able to afford them . i understand your model of trying to get more people, more democratization, but that means there is now a greater responsibility of ensuring your customers have all the information they need to access

riskier trades. the information that has to be digestible and accessible. for example, you are allowing up to $1000 to buy stocks on margin. buying them on margin is risky. how do you disclose this? how do you make the determination of individuals who are not as sophisticated investors by allowing them to buy these risky stocks that are on margin? mr. tenev: thank you, congressman, for the opportunity to address that. let me at -- let set the stage by sayinabout 2% of our customers bar on margin. about 13% on a monthly basis perform an options transaction. and a much smaller number perform a multi-leg options transaction. the majority of our customers

are engaged in buy-and-hold activities and long-term investing. clarify your points on the1000 margin, that is actually something we refer to as robinhood instant. it is provided as a courtesy, when a customer initiates a deposit. we allow them access to up to $1000 of that deposit immediately. similar to how if you deposit a check in the bank, as a courtesy they might provide access to that portion before a check clears. as for borrowing money on margin, the rules are very ironclad industrywide. obviously, robinhood securities confirms to all of the applicable rules. robinhood's product is in many ways more restrict than that of our competitors, because in order to qualify, you have to be a robinhood gold customer, which

includes paying five dollars a month. rep. meeks: when you say that everything is restrictive, when you were going after the less sophisticated investors, there is a greater responsibility to have. when they lose, it can make a determination of whether or not they can pay their mortgage or rent. they can be taken advantage of. often times it is those that has -- that have the least that are taken advantage of. it becomes a reverse robinhood situation, which is what concerns me. let me get to this real quick. in regards to liquidity, you said you did not borrow the money because you needed it at the time. then later in the question you

asked that -- you raised the additional money -- i want to know how you spent the money for future situations. it seems to me you did have a liquidity problem, or you anticipated having a liquidity problem, or would have won in future transactions. what is the deal there? mr. tenev: i appreciate that question. i stand by what i said. robinhood was able to meet our deposit requirements. we were in compliance with capital obligations throughout the period. that is additional capital, the $3.4 billion, was not to service our requirements. it was entirely to prepare for a future, even greater black swan event, and to remove restrictions on the trading and buying of these securities. rep. waters: the gentleman's time has expired.

>> thank you, madam chair. this would have been nicer 10 minutes ago when i was supposed to go, i'm going to go back to mr. griffin. the ranking member was filibustering himself. i wanted to make sure, mr. griffin, you had the opportunity to feel comfortable with that explanation of the best execution and what was tried to be asked. mr. griffin: i think it is important to emphasize that we have vigorously advocated for execution quality to be one of the dominant session making factors throughout order flow in the united states. this has saved retail investors billions of dollars over the years, and contrast to the executions they would receive through other strategies. with respect to order flow, we simply play by the rules.

payment for order flow has been approved by the fcc. it is a customary practice within the industry. if they choose to change the rules of the road, that is fine with us. i do believe payment for order flow is an important source of innovation in the industry. as the ceo of robinhood has testified, they drove the industry toward zero-dollar commissions. this has been a big win for american investors. >> i know there was ringlets associates had a steady out there do you concur this has been good for consumers in the most part? >>-there are still ongoing studies. i think the payment for order flow and price improvements have largely been good for improvements for customers. this has helped drive innovation

in the industry. i think disclosure can always be better, and i think people should understand that their broker still needs to make on a, even if they are providing a0 zero-commission trading service. rep. huizenga: right. i was going to start with this and ask each one of you why you thought were here today. i'm going to dispense with that. i will provide the answer. political theater, for the most part. that is what this hearing is today. we are on the business channels right now and on c-span. if you see a few of my colleagues playing for the cameras. we need to have some of these fundamental questions answered at the end of the day. one of the assertions you heard already today is that investing is "casino gambling" it is using monopoly funny-money, and i guess i want to know, is retail

-- individual retail participation in the marketplace gambling, casino gambling, or using casino money? mr. i don't hear him so mr. hoffman, let's move to you. >> no, i believe that investing is investing. >> ok, mr. griffin? >> i believe the vast majority of retail participation are people saving to meet their dreams. >> all right, mr. tenev. >> as i mentioned to my opening statement, robinhood customers have essentially made over $35 billion in unrealized and realized gains. >> very quickly. it's investing for them? >> absolutely, it's investing. >> let's go back to mr. gill.

>> of course, i believe it's an opportunity for investors to participate in the market as institutional's participate. >> the business channels had a good question. you recommended gamestop before. would you buy their stock now at roughly 45? you were talking about buying it and being happy when it hit so are you buying that stock today? >> investing can be risky in my particular approach to investing is aggressive it may not be suitable for anyone else but for me personally, yes. >> so yes or no, are you buying the stock? i find it's an attractive investment at this point. did you invest in gamestop because you were not aware of

the payment for order flow? that's one of the accusations. >> could you repeat that question? >> did you by gamestop because you are not aware of the payment for order flow? >> my investment in gamestop was based on the fundamentals. >> i think that answers that and i believe my time has expired. >> mr. velasquez, you are recognized for five minutes. >> thank you chairwoman. you seem to have perfected the communication of trading, providing users with the perception that investing through the robinhood app alters recreational gain. many of us understand that investing is not a game.

it carries significant risk. how does robinhood balance disclosure around the potential downside risk of investing including the risk of substantial loss and profitability and the ease of trading? >> i appreciate that question. giving people what they want in a responsible way is what robinhood is about. we don't consider that anything but serious. we are investing in all of the educational rules and customer support to help people on their investing journey. most of our customers are buying holds in a small percentage are trading options, about 13%. less than 3% borrow on margin so most people use robinhood to build up portfolios over time.

>> can you answer my question? how do you balance disclosure and the potential downside risk? >> we make lots of disclosures. we are also a self-directed brokerage. that means we don't provide advice we don't make recommendations for what customers should or should not invest in. >> you don't think as a result of emphasizing profitability and ease of trading over the risk of loss that many investors, amateur investors were unaware of the situation that they find themselves in? >> i think my opening statement,

robinhood customers have burned more than $35 billion in unrealized and realized gains on top of what they have deposited. i think this shows us that the product is working for customers . >> thank you. over the course of my time in congress, i have been concerned and focused on the dangers of shortselling. while i understand that shortselling can be used for legitimate purposes, too often, i have seen abuse and it ends up harming ordinary workers and families. i first saw it against the people of puerto rico and now we are seeing it here again in gamestop, large investors including hedge like yours have

to disclose their long positions when they own 5% or more of the company's shares. but not such disclosure is required for short positions. as we consider reform, is this type of disclosure something you would support? mr. plotkin? >> thank you for the question. i think it's a good question. whatever regulation is put forth in the marketplace, we will operate within those rules. it is certainly something i would be happy to follow up with you on. >> what about my question about shortselling? >> i think it's a really good question. it's not for me to decide that those are the rules then i will abide by them. >> ok, i am glad to hear that

answer. you are credited with helping stop -- start the gamestop situation with encouraging investments. the stock is now fallen from its high from many amateur investors who have lost hundreds of thousands of dollars. it is my understanding the you are a registered broker, is that correct? >> the gentle man -- the gentlewoman's time has expired. >> thank you you'll back. >> i appreciate the members who have participated today. this is not political theater at all. this is serious oversight responsibility. you are recognized for five minutes. >> my first question will go to

mr. gill. the question is, you're a serious investor and someone who does his homework and invests in the market in your own personal funds. the question would be that we are discussing the actions around robinhood and the transactions that place. do you think we need more legislation as a result of what happened here or did the system actually work? from the standpoint that it worked, was it self-correcting? did the fact that somebody like yourself was able to invest maybe take advantage of the over shorting position by the hedge fund guys who were trying to really drive down the price of the stock or did it point out that we had some company spreads like robinhood that was undercapitalized? maybe there was over aggressive other types of investing that was taking place, the algorithms

that were there in the different is ms. models did not work because you outsmarted the system, so to speak. would you like to comment on those questions? >> thank you for the questions. my expertise is in analyzing the fundamentals of the business and not so much on the innerworkings of the market. i am not so sure about legislation but i would say that increased transparency could help that someone like me could have a better understanding of how those types of things work. i feel it would be beneficial to retail investors. >> thank you for that robinhood is an interesting name. as i recalled the old story is take from the rich to give to the poor. i assume what you're doing is allowing the poor to compete with the rich which is interesting. you made the comment in your testimony about settling this on real time.

i think that would probably help the situation that occurred here but what other problems occur when you do this in real time? what are the things would we have to look at? what unintended consequences would there be if you did something like that? >> thank you for the question. i believe that right now, certain market participants rely on next-day settlement to be able to take advantage of intraday netting and run up larger one-sided positions in certain stocks with the knowledge that they can close those positions or reduce them by the time settlement happens. i understand that would be a limitation to the trading activities of some of these institutions. that is certainly one area to consider in the other is around securities lending. we would half to make changes to how security makes lending work.

i don't think anything's -- anything are insurmountable and i would be happy to deploy our intellectual capital and our teams engineering resources to help solve these problems very quickly. >> thank you for that. mr. plotkin and mr. griffin, the question is for both of you -- when ever you are shortselling, i understand the gamestop stock was short sold 140%. mr. plotkin, you made the comment in your testimony that you are not trying to manipulate stock. yet, if you are shortselling a stock 140%, for me on the outside looking in, it looks like that's exactly what you're doing. explain why that is not minute leaving a stock. >> thank you, congressman. for us, i cannot speak to other people who were shorted but anytime we sure a stock, our

systems force us to find a bar so we always short stocks within the context of those. >> mr. griffin, would you like to comment on that? you guys are market makers and brokers in hedge fund guys and you do all of it. why is this not considered manipulating a stock when you short sell at 140%? do you think there should be a limit on something like that? >> i believe that the short interest in gamestop was exceptional. i am not sure it's worth us delving into legislative directions for a unique situation in terms of the size of the short interests. all of the large marks, every bank, every hedge fund has to comply with the requirements to borrow shares to short shares in the course of their day in to help business. the practice of making shorting

was largely curtailed by sec mandate years ago. >> your time has expired. mr. scott is recognized for five minutes. >> thank you and let me say chair lady, as the people of this country appreciate you for holding this hearing, this is the future of our financial system and we have to get to the bottom of it. let me start with this. the sequence of events that led to the extreme rise in value of gamestop stock and the subsequent market volatility originated through a reddit discussion. that was fueled through social media. as the story gained traction, well-known figures influenced to

move markets said the stock value is higher and higher. let me start with you, what policy does robinhood have in place to monitor what happened on social media and how does it drive the use of your trading platform? >> thank you for the question. currently, robinhood does not perform any sort of moderation of social media. we simply don't have the data that the social media platforms have at their disposal to tie these posts to identities. within robinhood securities, we conform to all regulatory requirements around monitoring and trade surveillance in all things of that nature. >> don't you see something is

going terribly wrong here? what do you do to monitor the trades on individual stocks, particularly when in the case of gamestop, they are singled out and moved on social media? what do you do? >> i appreciate the question. our priority throughout the exceptional market conditions in january and early february was to maintain the uptime and performance of our platform and make sure we were available to customers. >> let me try to get to a point here. does robinhood have any policies in place to ensure that investors are making trades

based on legitimate, material financial information and not the influence of social media, the design of trading platforms? do you have anything? >> absolutely, we provide educational resources to our customers including error redesigned learn portal which is not just available to robinhood customers but to the general public. we have over 3.2 million people visiting us in 2020. >> you are at the center of this. don't you agree that something very wrong happened here? and that you are at the center of it? we're are looking on this committee of how we can protect

our wonderful, precious financial system. we need it from you. what about you, mr. hoffman? do you have anything? what steps does your company taking to guard against this? anything at all? >> we spend a lot of time ensuring the authenticity of our platform. we got a large team dedicated to this exact task. all of our content is created by users and voted on by users and ranked by users and we make sure that that is authentic and isun manipulated as possible. we did not see the signs of manipulation in this. >> i just want to conclude, i've got maybe 10 seconds left but this episode exposes a serious

threat to our financial system when social media posts do more to move the market then material, legitimate information. the risk is enormous. >> thank you very much. >> i appreciate you calling this hearing. the american financial markets are the envy of the world but are still imperfect. i would like to see this committee have a meaningful discussion about capital requirements and the clearing rules that may have contributed to some of robinhood's customers not being able to purchase stock including gamestop. because the majority did not include the eft's -- the ftc, the clearing corporations or the national security clearing corporation, to testify, we are left with what we have. that is because i believe the

majority are using this district dish this hearing to drive a narrative of the financial markets being rigged. mr. tenev, you decided to stop allowing your users to buy gamestop and other stock as a result of capital requirements on robinhood securities, is that correct? >> that is correct. deposit requirements with our clearinghouses. >> some of your users could only sell and not buy and that could have contributed to the stock actually not going up as fast because some of your users were prohibited from buying. is it possible that could have happened? >> i shouldn't speculate on what could have happened. >> if there are more sellers

than buyers, does the price go down or up? >> robinhood is a minority of trading -- >> i understand. but if your buyers can only sell and not by, then it clearly keeps you from putting upward pressure on the stock prices, is that correct? among your users. >> customers on our platform could only sell so there was no ability to buy, that is correct. >> you said earlier and i know some people have attacked your arbitration agreements but i wanted you to be clear. if your users were harmed as a result of these actions, they can recover through arbitration, is that correct? >> yes, that's correct and our arbitration is supervised and overseen and we believe arbitration gives customers a fair and speedier resolution to their claims.

>> thank, does your user agreement and arbitration allow for group arbitration or only individual? >> lenny get back to you on that. -- let me get back to you on that. >> can they do it as a group or only individuals in the arbitration agreement? >> i am sure you are familiar with the number of class-action lawsuits filed against robinhood. >> i'm not asking about that, i'm asking in your arbitration system, can a group of people come together or is it individual? this is not a trick question. i'm not a fan of trial lawyers, i'm just trying to understand. >> i think the best thing i can do is get back to you and be sure we get you the right answer. >> thank you, that would be helpful. mr. plotkin, are you a frequent short seller? >> we run a long-short portfolio and the majority of our

investments are long but we also have short ones to hedge market risk. >> has melvin capital ever engaged in shortselling of the stock at tesla? >> we have been short tesla within the past, that's correct. >> also, did you see the tweet from the tesla ceo about gamestop stock? >> i did see that after market hours, yes on that tuesday. >> do you believe his tweet had any significant effect of driving the rising gamestop stock? >> i don't want to speculate on what the actions of the tweet were. the stock did rise after that. >> do you believe that tweet was targeting you because you had shorted tesla stock in the past? >> we had a very small short position years ago so that would be pure speculation. >> thank you. i will go back to mr. tenev on

the regulatory requirements. do you believe the ftc and the depository trust clearing corporation could modify any of their roles as a result of what happened for your users because of capital requirements? >> the gentleman's time has expired. as the sec is not here today, they are in transition with a temporary chair awaiting the confirmation of the person who has been appointed by the president of the united states. this is a serious hearing and members are reminded not to impugn the motives of others. >> there is a reason for penalizing a market maker for improperly trading its own

accounts ahead of its clients' accounts. note i said -- i said improperly trading. i don't go -- i don't want to go through proper trading. i want to tell you what that reason is, please. >> trading ahead of customer accounts is illegal and it >> i understand it's a legal. i have to ask this question, quickly. what can happen that can benefit the market maker? how can that be modified so the market maker profits greatly from doing it? >> as a market maker trades improperly ahead of the customer account, he can get a better price and move the market in the process depending how big the trade is. that's hurting the customer. >> and if this trade is huge and

you can see the trade the client has is huge and will have an impact on the market, how does that benefit the market maker to trade ahead of the client? >> the market maker can get a better price for himself before the price changes by the client's trade. he can also engage in self-dealing as well. >> does it benefit a huge market maker to have a great deal of let's say a robinhood, because of the flow that will be coming through that the market maker can take advantage of? >> i don't think that they are congruent situations. when you trade ahead of a custom order which is something that is illegal and the sec monitors, it's very different from having knowledge as to the way the markets might be moving- >> i want to talk about the

circumstance where it's improper. here's my point, the market maker citadel traded over-the-counter stocks for its own accounts from 2012-2014 while simultaneously delaying climate -- client orders for the same shares. citadel has been naughty for some time. 2012, pardon me, 2014, citadel faced $800,000 in penalties. 2017, 22 point $6 million. in 2018, 3 .5 million. 2020, 90 7 million. and another 2020, 700,000. this seems like a lot of money,

it is for me, more than $124 million. but over the same time, citadel had revenues generated in the amount of 13.2 billion dollars. it seems to me that the punishment for the improper trade and improper actions, citadel also did some other things that were not proper. it seems that the punishment is so small given the amount of revenue generated for the same period it seems citadel has at least an opportunity to build into its cost of doing business, paying penalties. that concerns me. it concerns me that the

punishment does not did seem to deter citadel. it concerns me because i know of circumstances where persons who are not in the market, they do things that are much less harmful and they can possibly go to jail. the question that i have is this- what kinds of systems do we have in place and back to you again, ma'am, to prevent the very things i have called to the attention of? my colleagues >> is a former enforcement attorney, at finra, i can say that regulators have the same concern with fines and other punishment as the cost of doing business. it's one of the things that are considered along with the regulations around what. can punished >> the gentleman's

time has expired. as you know, we are going to have a series of hearings and expand it will include a whole bunch of experts as well on these issues. >> may i say something in the record, please? >> without objection. >> thank you. >> you are recognized for five minutes. >> mr. griffin, want to revisit this issue for payment for order flow. payment for order flow has been around for decades? >> i know it's been around for one or two decades but i don't know before that. >> to recognize an approved practice by the sec, correct. >> yes, it is. >> and payment for order flow is set by the oak ridge firm and not the wholesaler?

>> it is ultimately an negotiated number, but it is a number that is set by your required to meet -- you are required to meet at requirements, is that correct? >> in other words marketmakers are required to provide the same or better prices, is that correct? >> that is correct. >> how can marketmakers offer better prices? >> there are a number of drivers that permit us to offer that are pricing than what is available on the exchange. the first is that exchanges have legally mandated sizes of the penny. if you look at a stock like