Hearing planned in Congress: Gamestop hype will fall into the trap of politics

Friday 29th January 2021

Hearing planned in Congress
Gamestop hype will fall for politics

Small investors organize themselves online and drive up the prices of companies like Gamestop – much to the annoyance of large hedge funds. After online brokers restrict trading, criticism hails. Now Washington wants to deal with the subject too.

The excitement surrounding the extreme volatility of shares in the video game retailer Gamestop and other companies in the US financial market has finally reached the political level. The future chairman of the US Senate banking committee, Sherrod Brown, announced a hearing "on the current state of the stock market" on Thursday (local time). It was time for the SEC and Congress to make the economy work for everyone, not just Wall Street.

"The people on Wall Street only care about the rules if they're the one who hurts," Brown's statement said. The background to this is the great annoyance of investors about restrictions on trading in papers from Gamestop and other companies, through which they see themselves being thwarted in a profit path. The online broker Robinhood in particular came under massive criticism and suspected that it was discriminating against small investors compared to large Wall Street investors.

Robinhood boss defends restrictions

At companies such as Gamestop or the cinema chain AMC, hedge funds have recently lost a lot of money betting on falling prices, among other things because hobby traders organized themselves in online forums and successfully drove the company's shares up. The fact that Robinhood restricted the trade in the papers so that they can only be sold but no longer bought could now become a political issue and spark a larger debate about regulation.

According to the US media, the chairman of the US House of Representatives Finance Committee, Maxine Waters, is planning a hearing. It should be about the recent turbulence in the financial market and about the role of hedge funds in it. High-ranking Democratic Party politicians such as Elizabeth Warren and Alexandria Ocasio-Cortez also called for clarification. Republican Party officials also did not understand Robinhood's decision.

After the storm of outrage and the first complaints from investors who see themselves being driven out of price gains, Robinhood announced in the evening that it would ease the trading restrictions on the securities again. The shares of Gamestop then rose in after-hours trading by over 70 percent, those of AMC by almost 50 percent. The papers of other companies, such as the smartphone pioneer Blackberry, for which restrictions also applied, also grew strongly. Robinhood boss Vlad Tenev told the US financial broadcaster CNBC that the trade restrictions had been decided to protect his own company and its customers.