Atlanta's Elite Fashion and Entertainment Consultants

What the GameStop Congressional hearing will reveal to retail investors

One month after GameStop (GME) shares surged to record levels due to Reddit-fueled trading, Wall Street, online brokerage Robinhood and Reddit are facing probes by the Department of Justice (DOJ), the Commodity Futures Trading Commission (CFTC) and both chambers of Congress.

During GameStop's two-week meteoric rise, the S&P 500 dropped a whopping 5% from peak to trough. Wall Street felt the full brunt of the chaos. Hedge funds endured a gut-wrenching de-risking event comparable to the global financial crisis as retail investors banded together to short squeeze institutional investors. Fortunes were made and lost in hours, as the now-infamous hedge fund Melvin Capital Management became the poster child for Wall Street's self-help bailout machine.

Suffice to say lawmakers and regulators are paying attention. The incident has also caught the eye of Treasury Secretary Janet Yellen and the U.S. Securities and Exchange Commission (SEC). Now what?

A House Financial Services Committee hearing about the GameStop trading frenzy, scheduled for Feb. 18, will shine a light on the extant secular trends that allowed the capital markets to become farcical caricatures of themselves.

"We're still learning things new about what went on every single day... [T]he financial markets can move quickly," Andy Green, senior fellow for Economic Policy at American Progress and former SEC counsel, told Yahoo Finance Live. "So I think that's why it's really important for investors to be prudent, to be looking for the long term, to be aware of the basics about not borrowing on margin and taking risks that they can't afford."

Conflicts of interest
Robinhood will have to field tough questions. It will have to explain why it temporarily banned investors from trading GameStop and other stocks. Robinhood will also have to disclose how it assesses whether its customers are suitable to trade options (even if they're only call options that have defined risk). Exploding call option volume and the leverage embedded therein are accounting for a big chunk of a recent run-up in stock prices. Simply handing out leverage to inexperienced traders can be very dangerous.

Read news continuously :slot wallet

▶ Reply to This