fundamentals the whole enterprise was viewed by some as a giant video game, trading stocks instead of properties and monopoly money. but it's not all fun and games because people can lose their life savings, hard earned cash and, tragically, we know of at least one suicide linked to potential trading losses beyond those possible losses the actions of robin hood and other trading platforms during the gamestop frenzy caused confusion, anger, and undermined investor confidence in the fundamental fairness of our capital markets. none of this is healthy for our markets or good for investors but it makes markets work fairly is when everyone knows the rules and that the rules remain consistent and predictable and are enforced but because of robin hood's actions too many customers did

not get that predictability. many retail investors woke up on january 28th to find that they could no longer buy and sell stocks the same way they could the days prior and they were being treated differently than other market participants who could still buy and sell those same stocks so i don't blame them for thinking things were stacked against the little guy mr. tenev you stated in your testimony that robin hood restricted trading for certain securities including gamestop in order to meet your financial requirements with your clearing house. but when i go to robin hood's website, and the blog post you initially released on january 28th, your financial requirements with your clearing house are not mentioned. you only mentioned market volatility and when i review the robin hood customer agreement, you don't include specifics on how and

when you may decide to restrict trading, which you did and you don't include any language or disclosures regarding your capital requirements it only includes vague language that at any time and in its sole discretion robin hood can restrict trading in other words, you seemed to reserve the right to make up the rules as you go along so i have two questions for you. first do you think you owe your customers more disclosure and transparency than you gave them? and, 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 >> congresswoman, i appreciate the question so to answer the second question, look

i'm sorry for what happened. i apologize. and i'm not going to say that robin hood did everything perfect and that we haven't made mistakes in the past, but what i commit to is making sure that we improve from this. we learn from it and we don't make the same mistakes in the future and robin hood as an organization will learn from this and improve to make sure it doesn't happen again and i'll make sure of that >> well, i expect we will experience future events with increased volatility and robin hood'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 and your communication was not clear. so my next question, mr. tenev, looking forward, what operational changes is robin hood 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? >> thank you for that question, congresswoman. we'll be committed to reviewing absolutely everything about this the $3.4 billion we raised i think 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 improved our risk management processes and strengthened them so the experience customers had that week was much improved from thursday we continue to learn and improve upon this. >> ms. wagner, you are recognized -- >> thank you, madame chairwoman. i'd like to welcome our witnesses for testifying today

regarding the january market volatility that took place along with what i hope is a broader discussion on market functions and their effect on every day investors. since i was very 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 savers are giving the investment choice, access, and affordability that they deserve retail investors are the strength of our stock market and i have fought throughout my career for their best interests in the financial markets and this hearing today is no different. the advances in financial technology that we've witnessed in the last decade have improved the way that americans and our businesses perform financial activities in just the past year, we have seen retail investors market participation more than double

and i think this is great. i believe in the wisdom of the retail investor and i say i believe in the first amendment, too. this increase is attributed to robin hood and other trading brokerages who are lowering account minimums, permitting fractional share trading, and implementing zero commission trading. it's critical that congress focused on reducing barriers, reducing barriers to market participation, which is rarely wont to do let me sadly 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, better for their families and 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, that will prevent people from participating in our capital markets, letting existing regulations work is key, not burdening every day investors with new and more costly barriers to entry mr. tenev, it appears at the time your company did not have the money to meet the collateral requirements for that level of trading by your customers. in your view, a, were the collateral requirements from the dtcc unreasonably high, was the amount of trading on your platform unforeseeable, or was your company under capitalized given its risk profile >> thank you for the question, congresswoman. so this event was a phi sigma event which is 1 in 3.5 million event. to put that in context there have only been tens of thousands of stock market days in the history of the u.s. stock market

so 1 in 335 million event basically is unmodelable that said, we can learn from it and in this particular case our risk managing processes worked to keep us in compliance with all of our deposit requirements and collateral requirements. >> mr. tenev, i realize you are doing a full review of your practices and such i encourage you to do that and certainly communication with your investors is going to be key to that because you didn't communicate with them early on let me say as a ranking member on the diversity and inclusion subcommittee i am delighted to be speaking with our witness missjennifer schulp. ranking member mchenry and i have spent hours stressing the importance of having qualified women in finance so i am pleased to have you here today to lend your expertise we now know it was the daily demand set by the national security clearing corporation that were the reason robin hood

had to temporarily restrict trading. can you briefly explain the purpose of these capital requirements and their overall relationship to ensuring our markets function in an orderly manner and did you see any broad failures of market function during the events, ma'am >> sure. thank you. thank you for the compliment the sec's collateral requirements here serve the function to provide security for the stock -- so while an investor thinks that what has happened is they bought a stock on the day they make a trade, it really took two days -- during that time the brokerage firm on oert side can remain at risk of that stock not actually clearing and the collateral-in place to

mitigate the -- that the brokerage firm will not be able to make good on its promises i didn't see any broad scale failures the dtcc's collateral requirement was large, but understandable and i think things functioned largely correctly. >> my time is expired. i thank you all for your testimony and i yield back, madame chairwoman. >> thank you, madame chairman. point of order i just want to remind people when they're not speaking to mute themselves because there is a lot of feedback when a question is asked and the mic stays open and the people are answering the question just remind everybody mute when you're not speaking. that's all >> thank you very much you heard him. i would hope every member would certainly do that. mr. chairman, you're recognized for five minutes

>> thank you very much we've come to expect things on the internet to be free. when you're not paying for it, it's not free. you're the product someone else is the customer when you go on to facebook and it's free, you're the product being sold to the advertiser and your information is sold to god knows whom so we now have a system where we're telling investors that it is free to invest to buy and sell stock there are two ways to pay the folks involved in wall street for buying and selling stock one is a commission. and you know what it is. and so we discourage investors a little bit from buying and selling stock because they have to pay a commission and they know they're paying a commission the other way to do it is to

give them a worse execution. whenever there is, say, 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 and so the issue is whether robin hood and other people who are being told you get it for free are really getting it for free mr. griffin, you're a market maker. you pay some brokers for order flow you pay other -- you don't pay others for order flow. so when you pay for order flow you're not making as much on the transaction. you have to pay some of that back to the broker that's hidden for -- the amount of that is hidden from the

customer the fact it exists has perhaps recently been disclosed. sec rules require that people get the best execution but i've recently learned that there is best execution and enhanced pricing. so if you get an order from fidelity and you get an order from robin hood and you're paying for the robin hood order flow, is that customer getting, is the robin hood customer getting as good a price as the fidelity customer? >> so, congressman, i believe it is an excellent question the execution quality that 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 -- >> don't tell me that there are other factors involved and take us down another road

i'm asking you a clear question. assuming same size of work, one comes in from robin hood one comes in from fidelity is it not true that one is going to be getting enhanced best execution and the other one is just going to get best execution? >> so as i was trying to explain, because the robin hood order comes from a community, a community of traders who tend to trade in smaller size -- >> that isn't my question, sir you're evading my question by thinking up other questions. let me repeat. two identical orders come in same stock, same quantity. one is from robin hood one is from fidelity what happens >> the quality of the execution varies by the channel of the order. this is a commonly understood phenomena in economics that channels matter. so, for example, when you go get a mortgage, a mortgage from

jpmorgan to their clientele has a different rate of interest. >> okay. reclaiming my time, sir. who gets the better deal the one that comes from a broker who is paying, 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 >> so, as i said earlier, size of the order is only one factor. >> you are doing a great job of wasting my time. if you're going to filibuster you should run for the senate. everyone else i talked to in this industry says when you pay for order flow you get a -- when your broker is being paid for order flow you get a worse execution. and otherwise you are in a peculiar circumstance where you're making more money on a

fidelity transaction than a robin hood transaction >> the gentleman's time has expired. mr. lucas, you're recognized for five minutes >> thank you, madame chairman, for holding this hearing thank you to the witnesses for agreeing to testify. it's been reported that at approximately 20% of market volume is not attributable to retail customers which i think is fascinating considering it is up from 10% in 2019. that is an overwhelmingly positive development more market liquidity, more stability, additional avenues for households to grow their wealth it is important to increase market access for retail customers. and i don't want to disrupt that if we possibly can i'd like to turn with my first question to mr. tenev. let's talk about the attention this paid for order flow has received you explained in your testimony robin hood's relationship with

market makers is important robin hood's ability to offer commission free trading. so expand if you would on how that process benefits the every day investor and just expand in general on that if you would >> congressman, i'd be happy to. thanks for giving me an opportunity. so as i mentioned in my written testimony, payment for order flow enables commission free trading. prior to robin hood, 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. now, robin hood routes to market makers including citadel execution services we've got seven in total across equities and options we route without consideration for payment for order flow all payments are uniform for order flow across the market makers and our system routes orders based on who provides the

best execution quality for our customers. so the reason citadel gets a relatively high percentage of our customer order flow is because they provide superior execution for our customers. that is the most important consideration that we look for how are our customers getting the best execution quality if another market maker were to improve the execution quality that citadel execution services provides on any subset of orders our system is set up to automatically route more traffic to that market maker >> continuing down this line, clearly, this is one of the things my colleagues and the public has a very strong interest in and having lived through dodd/frank before i've seen times where major things occur. i want to turn to mr. griffin. could you also elaborate on how payment for order flow provides

whether it's the best price to the retail investor from the market maker's perspective could you expand on that as you outlined >> absolutely. so as the ceo of robin hood set forth clearly, the orders that are allocated amongst the market makers today are allocated principally on the basis of pricing. we have fought for 15 years to make that the basis by how which orders are allocated because we strongly believe citadel is better able to provide a better execution for retail orders in the long run we make a huge investment in our team, in our technology to do so how is it that we are able to provide better execution quality and exchanges? because exchanges are limited in their ability to do business by regulatory mandate exchanges by law have a minimum one cent wide market which for low price securities means they

are less competitive than they otherwise could be we're able -- >> -- what are you doing >> excuse me >> that wasn't either one of us. continue, mr. griffin. >> all right so we're able to share our trading acumen with retail investors and able to give them a better price and we're able to make payments for order flow to firms like robin hood that allow them to have lower or today in most cases no commission and of particular note we're able to help robin hood and other brokers pay exchange fees to the exchanges at the time of execution. this has been very important to the dmemocratization of finance and has allowed the lowest execution cost they've ever had in the history of the u.s. financial market >> mr. tenev in the dodd/frank

process the chairman and i went through a decade ago plus there was much discussion about margin requirements give us just a discussion for an instant about when you discovered you had a $3 billion additional margin call >> thank you, congressman. i believe the full play by play of the situation was described in detail in my written testimony. just to clarify, though, this decision -- >> the gentleman's time has expired unfortunately. thank you, madame chair. i yield back >> -- has expired. mr. meeks, you're recognized for five minutes >> thank you, madame chair, for this hearing and mr. ranking member let me ask a question to mr. tenev. i've been once or twice in the market but particularly since i've been a member of congress

one of the things that i recall greatly was the financial crisis in 2008. and it is, you know, we thought that opening the market up where people had adjustable rate mortgages, etcetera, were able to get into the market, people who may not have been before but a lot of this disclosure had not happened so they didn't look nor was -- there was no documents to look at their incomes or anything of that nature. so when those adjustable rates happened, many individuals lost their homes. many people who bought those mortgages, who initially agreed to those mortgages sold them immediately because they did know the people would not be able to afford them and they would default shortly thereafter now, so, i understand your model of trying to get more people, more democratization but that

means there's, now, a greater responsibility of ensuring that your customers have all of the information they need to accessories kier trades. now, for me the information has to be digestible and accessible. one of the problems i have for example you're allowing up to $1,000 to buy stocks on margin and buying on margin is risky. how do you disclose this how do you make the determination of individuals who are not the sophisticated investors and allowing them to buythese risky stocks that are all margin >> thank you, congressman, for the opportunity to address that. let me set the stage a little bit by saying that about 2% of our customers borrow on margin about 13% on a monthly basis perform an options transaction and a much smaller number around

3% perform a multi leg options transaction. so the vast majority of our customers are engaging in buy and hold activities and long term investing on our platform now, to clarify your point on the $1,000 margin, that is actually something that we referred to as robin hood instant and it's provided as a courtesy when a customer initiates a deposit we allow them access to up to a thousand dollars of that deposit immediately. similar to how if you deposit a check at a bank, as a courtesy, they might provide access to that, to those funds or a portion of them before that check clears as for margins specifically borrowing money on margin, rules are very iron clad industry wide obviously robin hood securities con forms to all of the applicable rules and robin hood's product is in many ways more restrictive than that of our competitors because in order to even qualify for borrowing on

margin you have to be a robin hood gold customer, which involves paying $5 a month for the service. >> so i think that you say that everything is restrictive but when you are going after the less sophisticated -- it's more than that. this is a greater responsibility that you have because they could lose when they lose, it could make a determination of whether or not they could pay their mortgage or their rent or not. and they could be taken advantage of oftentimes we find in the financial industry it is those that have the least that are really taken advantage of so the big guys, you know, it becomes a reverse robin hood situation which is really concerning to me let me get to this real quick. there was just something else that you said in regard to liquidity. you said that you didn't borrow the money because you needed it

at the time but that then later in a question you asked -- that you raised the additional money. that wasn't how you spent the money. for future situations. which says to me you did have a liquidity problem or you anticipated possibly having a liquidity problem or would have one in future transactions could you -- what is the deal there? >> i appreciate that question. i stand by what i said robin hood was able to meet our deposit requirements we were in compliance with firm net capital obligations throughout the period and that additional capital, the $3.4 billion wasn't to serve as requirements it was entirely to prepare for a future even greater black swan event and to unrestrict and remove restrictions on the trading and buying of these

securities. >> the gentleman's time has expired. you're next with five minutes. >> thank you, madame chair and this would have been nicer ten minutes ago when i was supposed to go but i'm going back to mr. griffin and the capital markets subcommittee ranking member i think was filibustering himself. i just want to be sure mr. griffin you had that opportunity to feel comfortable with the explanation of that best acts execution and what was attempted apparently to try to be asked. >> congressman, i hope so. i think it's important to emphasize that we have vigorously advocated for execution quality to be one of the dominant decision making factors the order flow in the united states. this has saved retail investors billions of dollars over the year in contrast to the executions they would receive through other execution strategies >> okay. >> with respect to payment for

order flow, we simply play by the rules of the road. payment for order flow has been expressly approved by the sec. it is a customary practice within the industry. if they choose to change the rules of the road, we need to drive on the left side versus the right side that's fine with us. i do believe that payment for order flow has been an important source of innovation in the industry as the ceo of robin hood has testified, they drove the industry toward zero dollar commissions. this has been a big win for american investors >> let me get to ms. schulp from cato institute and i know that there was a greenwich associates had a study and others are out there do you concur that this has been good for consumers in the most part >> i think there are still ongoing studies but i do think that payment for order flow and the price improvements have

largely been good for improvements for customers and i agree with mr. griffin that 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 money even if they're providing a zero commission trading service >> okay. all right. three minutes left i was going to start actually with this and ask each one of you why you thought you were here today but i'm going to dispense with that because it is going to take too much time and i'll provide the answer political theater for the most part that's what this hearing is today. we're on the business channels right now and on spoin -- we're on the business channels right now and on c-span i think you see a few of my colleagues playing to the cameras but we need some of these fundamentals and questions answered at the end of the day and one of the assertions you've heard already today is that investing is, quote, casino gambling, it's using monopoly

funny money, and you know i guess i want to know is retail, individual retailparticipation in the marketplace gambling, casino gambling, or using funny money? mr. gill, why don't we start with you very quickly i don't hear him so mr. hoffman let's move to you. >> no, i believe that investing is investing >> okay. mr. griffin? >> i believe the vast majority of retail participation are people saving to meet their dreams >> all right mr. tenev? >> congressman, thank you. as i mentioned in my opening statement, robin hood customers have essentially made over $35 billion in unrealized and realized gains.

>> very quickly. >> on all of their assets. >> it's a good thing for them, correct? >> absolutely. it is investing and building wealth >> back to mr. gill? >> yes, of course. i do -- i believe it is an opportunity for investors to participate in the market just as institutionals participate. >> okay. so the business channels had a good question from one of the reddit readers which is, so you recommended gamestop before. would you buy their stock now at roughly 45, started at 48 earlier today? you were talking about buying it and being happy when it hit cross 20 are you buying that stock today? >> well let me just say investing can be risky in my particular approach to investing is rather aggressive and may not be suitable for anyone else but for me personally yes >> so yes or no? are you buying the stock >> for me personally yes i too find it is an attractive investment at this price point

>> did you invest in gamestop because you were not aware of the payment for order flow that is one of of the accusations that people bought into this because they don't know that. >> sorry could you repeat that question >> did you buy gamestop because you were not aware of the payment for order flow >> my investment in gamestop was based on the fundamentals. >> okay. i think that answers it. i believe my time is expired >> ms. valasquez you are recognized for five minutes. >> -- seems to have perfected the trading providing you with the perception that going through the robin hood app provides recreational gain

playing with little if not down side risk. of course many of us understand investing is not a game and carries significant risk how does robin hood balance disclosures around the potential down side risk of investing, including the risk of substantial loss and the more enticing claims of profitability and the ease of trading. >> congresswoman, i appreciate that question. giving people what they want in a responsible way is what robin hood is about. we don't consider that a vacation we know investing is serious and we're investing in all of the investing rules and customer support to help people on their investing journey. what we see is most of our customers are buy and hold a very small percentage are trading options. about 13%.

less than 3% borrow on margin. most people use robin hood to build up portfolios over time. >> can you answer my question? how do you balance disclosures on the potential down side risk of -- >> so we make lots of disclosures, congresswoman we always are a self-directed brokerage, so that means we don't provide advice and we don't make recommendations for what customers should or should not invest in. >> so you don't think that as a result of the emphasizing profitability and ease of trading over the risk of loss that many investor, amateur investors, were unaware of this

equation --? >> well, i want to mention again as in my opening statement robin hood customers have earned more than $35 billion in unrealized and realized gains on top of what they've deposited so i think this shows us that the product is working for customers and the option is working. >> okay. thank you. over the course of my time in congress, i have been concerned and spoken out about the dangers of short selling while i understand that short selling 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, gamestop large investors including hedge funds 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, if this type of disclosure for short positions, is this something you would support? >> yeah, congresswoman, thank you very much for the question i think it's a really good question you know, whatever regulation is put forth in the marketplace we will obviously operate within those rules. it certainly is something i'd b happy to follow up with. >> what about my question about short selling?

>> i think it is a really good question it is not for me to decide but if those are the rules i'll certainly abide by them. >> okay. i'm glad to hear that answer public reports credit you with helping to start the gamestop craze by encouraging other amateur investors to bet against the short position mr. plotkin and others took but the stock has now fallen from its high and investors have lost hundreds of thousands of dollars it is my understanding you are a registered broker, is that correct? >> gentle lady's time has expired. >> thank you >> i appreciate all of the members who are participating today. this is not political theater at all. this is serious oversight responsibility and members are reminded not to impune the motive of other members.

thank you. you're recognized for five minutes. >> thank you, madame chair my first question would go to mr. gill mr. gill, you know, i guess the question is you're a very serious investor, somebody who does his homework, invests in the market, your own personal funds, and so i guess the question would be here today we're discussing the actions around robin hood, all the transactions that took place i guess do you think we need more legislation as a result of what happened here or did the system actually work let me just make a couple comments on that part. from the standpoint did it work, was it self-correcting did the fact that somebody like yourself was able to invest and maybe take advantage of the over shorting positions by the hedge fund guys who were trying to really drive down the price of the stock for other reasons, whatever, or did it point out perhaps that we had some companies like robin hood, i would argue it was under

capitalized and under reserved, or maybe there was over aggressive other types of investing that was taking place? the algorithms that were there, the different business models, they didn't work because you out smarted the system so to speak would you like to comment on that, on that sort of questions and how i formatted that >> thank you for the question, congressman. i would say my expertise is in analyzing the business, the fundamentals of the business, not so much on the inner workings of the market i'm not so sure about legislation per se what i would say is that increased transparency could help that if someone like me could have a better understanding of how those types of things work i feel as though it would be quite beneficial to retail investors >> thank you for that. i know that mr. tenev robin hood is an interesting name as i recall the old story is take from the rich 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, mr. tenev, about settling this in real time we had the electronic ability to do this. 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 we have to look at, what are the unintended consequences if you did something like that? >> thank you, congressman, for the question i believe that right now certain market participants rely on the next date settlement to be able to take advantages 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 and i understand that would be a limitation to the trading activities of some of these institutions, so that is certainly one area to consider the other is around securities

lending. it would have to -- we'd have to make changes to how securities lending works. i don't think any of these are insurmountable challenges, and i'd be happy as i mentioned earlier to deploy our intellectual capital and our team's 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 here whenever you're short selling i understand that gamestop stock was short sold 140%. and mr. plotkin, you made the comment in your testimony a minute ago that you were not trying to manipulate stock yet if you're short selling a stock 140%, for me on the outside looking in it looks like that is exactly what you're doing. explain to me why that's not manipulating the stock >> thank you, congressman.

for us i can't speak to other people that were shorted any time we short a stock we locate a borrow. our systems force us to find a borrow so we always short stocks within the context of all the rules >> mr. griffin, would you like to comment on that you guys are both market makers and brokers and hedge fund guys. you do all of it why is this not considered manipulating a stock whenever you can short sell to 140% don't you think there should be a limit on something like that >> so i believe that the short interest in gamestop was exceptional and i am not sure it is worth us delving into legislative corrections for a very unique situation in terms of each stream size of the short interest i will say that all of the large markets -- in fact every bank, every hedge fund does have to comply with the requirement to borrow shares to short shares in

the course of their day in and day out business the practice of naked shorting was largely curtailed by sec mandate years ago. >> the gentleman's time has expired. mr. scott, you're recognized for five minutes >> thank you, chair lady waters. let me just say, chair lady, that the people of this country appreciate you for pulling this financial services hearing together because this is a threat to the future of our financial system and we got to get to the bottom of it. let me start with you, and let's go through 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 and then that was fueled through

social media and as the story gained traction, trades by well known figures with the influence to move markets sent the stock value even higher and higher so let me start with you, mr. tenev, what policies does robin hood have in place to monitor what happened on social media and how it drives the use of your trading platforms >> thank you forthe question, congressman. currently, robin hood 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. we do, however, within robin hood's securities, conform to

all regulatory requirements around monitoring and trade surveillance and all things of that nature. >> don't you see something is going terribly wrong here? what do you do to monitor the trades and 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 up time and performance of our platform. and make sure that we're available to customers >> let me try to get to a point here do you, robin hood, do you have any policies in place to ensure

investors are making trades based on egitimate, material, financial information and not the influence of social media. the design of trading platforms or any other superfluous information? do you have anything >> absolutely. congressman, we provide educational resources to our customers including our redesigned robin hood learn portal which is not just available to robin hood customers but to the general public and had over 3.2 million people visiting in 2020 >> but don't we need -- do we not -- i mean, you are at the center of this we got -- don't you see and agree that something very wrong

happened here? and that you're at the center of it and we are looking on this committee at how we can protect our wonderful, precious financial system we need it from you. what about you do you have anything what steps is your company taking to guard against this anything at all? >> congressman, we spend a lot of time ensuring the authenticity of our platform we have a large team dedicated to this exact task everything on reddit, all of the content is created by users, voted on by users, and ranked by users. we make sure that is authentic and unmanipulated as possible. and in this specific case we did not see any signs of manipulation >> madame chair lady i just want to conclude, i got maybe ten

seconds left, but this episode exposes a serious threat to our financial system when tweets, social media posts do more to move the market than material, legitimate information this is enormous >> thank you very much you now have five minutes. >> thank you, madame chair appreciate you calling this hearing. the american financialmarkets believe are the envy of the world. they're still imperfect. i would have liked to have seen this committee have a meaningful discussion about capital requirements and the t plus 2 clearing rules that may have contributed to some of robin hood's customers not being able to purchase stock including gamestop for a period of time. because it didn't include the

sec, depository plus clearing corporation or national securities corporation to testify we're left with what we have that is because i believe the majorities attempting to use this hearing to drive a narrative about the u.s. capital markets being rigged but i do have several questions. mr. tenev, you decided to stop allowing your users to buy gamestop and other stocks as a result of capital requirements on robin hood securities, is that correct >> that's correct, yes deposit requirements with our clearing houses. >> and those got resolved but for a period of time some of your users could only sell and not buy and that could have contributed to the stock actually going, not going up as fast because some of your users were prohibited from buying. do you think that is possible that could have happened

>> i shouldn't speculate on what could have happened. >> if there are more sellers than buyers does the stock price go down or up? >> to be clear robin hood congressman is a minority of trading activity >> i understand. >> -- in these securities buyerl and not buy, then it clearly keeps you from putting upward pressure on the stock price, is that correct >> on thursday. >> among your users. >> customers on our platform could only sell, so there was no ability to buy, that's correct. >> right so you know, i know and you said earlier, by the way, i know some people have attacked your arbitration agreements, but i want you to be clear, if your users were harmed as a result of these actions, they can recover through arbitration, is that correct? yes or no? >> yes, that's correct and our arbitration is finra

supervised and overseen, and we do believe arbitration gives a fair and speedier resolution to their claims >> thank you does that -- does your user agreement and your arbitration allow for group arbitration or only individual arbitration? >> let me get back to you on that one. >> if a group was treated similarly and similarly affected or lost up side or lost money, can they do it as a group or is it only individual in your arbitration agreement? >> congressman, i'm sure you're familiar of the number of class action lawsuits filed against robinhood. >> i'm not asking about a class action lawsuit, i'm asking in your arbitration system can a group of people come together or an individual, and this is not a trick question i'm not a fan of trial lawyers, i'm just trying to understand. >> i appreciate the question, congressman, i think the best thing i can do is get back to you after making sure that we get you the right answer >> thank you, that would be helpful. >> mr. plotkin, are you a frequent short seller, yes or

no >> and we run a long/short, portfolio, the majority of our investments are long investments but we also have short investments to hedge out market risks. >> thank you, mr. plotkin, has melvin capital engaged in short selling of the stock tesla. >> we have been short of tesla, that's correct. >> and this is a longer question did you see the tweet from tesla ceo elon musk about gamestop stock? >> i did see that after market hours on, yes, on a tuesday. >> do you believe that mr. musk's tweet had any significant effect of driving the rise in gamestop stock >> i don't want to speculate on what the actions of his tweet were the stock did rise after hours >> do you believe that tweet was targeting you because you had shorted tesla stock in the past? >> you know, we had a very small short position years ago in

tesla. that would be pure speculation as to his motives of putting that tweet out. >> okay. thank you. i'll go back to mr. tenev. on the regulatory requirements, do you believe that the s.e.c. and the depository trust and clearing corporation should modify any of their rules as a result of what happened to your users because of capital requirements >> i do believe -- >> the gentleman's time has expired and the s.e.c. is not here to -- with the temporary chair, appointed by the president of the united states, this is a serious hearing, members are reminded not to impede the motives of others thank you, mr. green, you're recognized for five minutes. >> there is a reason for

penalizing a market maker for improperly trading it own accounts ahead of its clients accounts note that i said improperly tradi trading. i don't want to go through the scenario of there being a time of proper trading ahead of accounts i would like you to tell us what that reason is, please >> whattrading ahead of customer accounts is illegal and it does not -- >> i understand it's illegal i don't mean to be rude, crude and refined. i have to ask this question quickly. what can happen, too, that can benefit the market maker how can that be monetized such as the market maker profits greatly from doing it. >> if a market maker trades improperly ahead of the customer accounts, he can get a better price and he can move the market in the process depending on how big the trade is that's hurting

the customer >> if this trade is huge and you can see that this trade that 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 it can also engage in self-dealing that way as well. >> so does it benefit a huge market maker to have a great deal with, 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're necessarily congruent situations when you're trading ahead of a customer order which is something that is illegal and that the s.e.c. does monitor for, it's very different from

having knowledge as to the way that the market might be moving based on -- >> i understand, but i want to talk about the circumstance where it's improperly, not where it's proper. remember, we started with improper trading here's my point, let me go to it quickly. the market maker citadel traded over-the-counter stocks for its own accounts in 2012 from 2012 to 2014, while someimultaneousl delaying client orders for the same shares, and it was fine for this citadel has been mouthy for some time 2012, pardon me, 2014 citadel faced $800,000 in penalties. 2017, 22.6 million 2018, 3.5 million.

2020, 97 million, and another 2020 of 700,000. this seems like a lot of money it is for me more than $124 million but over the same period of time, citadel had revenues generated in the amount of $13.2 billion. it seems to me that the punishment for these improper trades, because it wasn't just trading, citadel also did some other things that were not proper seems that the punishment is so small given the amount of revenue generated over this same period of time it seems that citadel has at least an opportunity to build

into its cost of doing business paying penalties, and that concerns me. it concerns me that the punishment doesn't seem to deter citadel. it concerns me because i know of circumstances where in persons who are not in the market, they do the things that are much less harmful and they can possibly go to jail. so 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 that i have called to the attention of my colleagues >> well, as a former enforcement attorney at finra, i can say that regulators have the same concern with fines and other punishments becoming just a cost of doing business. and it's one of the things that

are considered along with the rules and regulations allowed around what can be punished. >> the gentleman's time is up. >> may i, for the record mr. green, as you know, we are going to have a series of hearings and our next panel will include the whole bevy of experts also on some of these issues with that. >> may i say something in the record, please >> without objection, you may enter into the record, thank you. >> thank you >> you're recognized for five minutes. >> thank you, madame chair, and mr. griffin, i want to revisit this issue of payment for order flow payment for order flow has been around for decades, correct? >> i know it's been around for at least one or two decades. i can't answer before that period of time. >> and it's a recognized and approved practice by the s.e.c.,

correct? >> yes, it is. >> and payment for order flow is set by the brokerage firm, not the whole seller, right? >> that -- it is ultimately a negotiated number, but it is a number that is set by the brokerage firm, and not by us as the market acre. >> well, as a market maker that provides execution services to retail brokers, you are required to meet best executional requirements is that correct? >> yes, it is. >> and in other words, market makers are required to provide the same or better pricing than the exchanges, correct >> that is correct >> and how can market makers offer that better pricing to mr. sherman's line of questions. >> so there are a number of drivers that permit us to offer better pricing than what is available on exchange. the first is that exchanges have legall