38 INVESTMENT ADVISOR MARCH 2021 | ThinkAdvisor.comand squeezing [the hedge funds] out?”Lynch said.
She added: “It will be interesting to
see if they are the Robinhood-type trad-
ers (are individual retail traders) or if
they are professionals … professionals
trying to push out the competition, then
you have a very interesting case for the
regulators to step in with enforcement
action against those individuals.”
Stated Bacon: “I wouldn’t
be surprised if some of the
posts came from hedge funds
or other institutional players.
[Former MassMutual advi-
sor] ‘Roaring Kitty’ is a CFA
with some serious investing
chops but not a represen-
tative of a major institution
playing the short squeeze.
The investigation should
focus on who is attempting
to lead the retail market.”
William Galvin, Massachusetts’ top
securities regulator, is investigating
Keith Patrick Gill, the person behind
the Roaring Kitty YouTube streams
that, combined with a string of posts by
Reddit user DeepF***ingValue, drove
a sudden increase in GameStop stock
trading, slamming hedge funds that had
bet against the struggling retailer.
The Massachusetts Securities Division“is looking into whether or not MassMutualshould have been aware of Mr. Gill’s activities,” a MassMutual spokesperson said.
TENEV’S TAKE
Vlad Tenev, co-founder and CEO of
Robinhood Markets, told Bloomberg
Technology’s Emily Chang in a Jan. 28
interview that Robinhood “to be clear,
didn’t restrict trading; we restricted
buying on about 13 securities on the
platform. Customers that held securities
could sell them and customers were also
able to trade the thousands of other secu-
rities on Robinhood without restriction.”
Tenev went on to say that “there’s been
an unprecedented market environment
the past couple of weeks, where there’s
been concentrated investing around stocks
that have been very, very popular on social
media; so you’re seeing kind of an inter-
section of social media and finance and
individual retail investors participating in
the markets like they’ve never before.”
financial requirements, including clear-
inghouse deposits that we have to make
to various clearinghouses, some of these
requirements fluctuate based on volatility
in the markets, and in this current unprec-
edented environment can be substantial.”
Both firms did, though, “adjust mar-
gin requirements on select stocks to
ensure clients had sufficient assets
to pay for stock purchases … and also
restricted certain advanced options
strategies,” Schwab explained.
MOVING TO T+ 1?
Jennifer Schulp, director of Financial
Regulation Studies at The Cato’s Institute’s
Center for Monetary and Financial
Alternatives, noted on an early February
podcast held by Cato that while “it’s com-
pletely understandable” that investors
would be upset by not being able to make
the trades, “it’s not at all unusual for bro-
kerage platforms to have to restrict trading
in certain securities or under certain cir-
cumstances when situations are unusual.”
However, “that’s not to say that inves-
tigations won’t turn up facts that we
don’t know right now. Robinhood’s deci-
sion, or about Schwab’s decision. … But
this idea of restricting the trading is not
unusual,” Schulp said.
With the rapid increase in GameStop’s
price and the volatility in the price, “the
clearing company … required
a significant amount more
capital from these brokerage
platforms in order to make
the clearing process work.”
During the two days it takes
to clear a stock trade, “the risk
and the liability for that trade
stays on the books of that bro-
kers and as the stock prices
increases and gets a little bit
wild, it costs more to keep
that liability for the brokerage
platform,” Schulp explained.
Toes, who interviewed
former SEC Commissioner Michael
Piwowar during the STA podcast, said
the current T+ 2 “settlement process
does appear to be antiquated.”
While serving as acting SEC chairman
in 2017, Piwowar finalized a rule to change
the settlement date for securities transac-
tions to T+ 2 from T+ 3. “That was the easi-
est regulatory layup in the history of the
commission,” said Piwowar, now execu-
tive director of the Milken Institute Center
for Financial Markets. “We had been at
T+ 3 for 22 years; we were behind the rest
of the world,” he said. It was a “win, win,
win to shorten the settlement cycle.”
With the changes in technology fouryears later, “is it appropriate to look atshortening the settlement cycle now”to T+ 1? Piwowar asked rhetorically. “Ofcourse it is. This should be one of themore high priority things the commission works on.”
Washington Bureau Chief Melanie Waddell canbe reached at mwaddell@alm.com.
With the rapid increase in
GameStop’s price and the volatility
in the price, “the clearing company
… required a significant amount
more capital from these brokerage
platforms in order to make the
clearing process work.”
—Jennifer Schulp, Cato Institute