5 questions that need answers at the GameStop hearing
London (CNN Business)Congressional hearings often involve a lot of grandstanding. But as the House Financial Services Committee prepares to grill major players in the GameStop saga that shocked investors last month, there are still some big questions that need answers.
What's
happening: Robinhood CEO Vlad Tenev, Citadel CEO Ken Griffin, Melvin
Capital CEO Gabe Plotkin, Reddit CEO Steve Huffman and Keith Gill, the
GameStop backer known as "Roaring Kitty" on YouTube, are all scheduled
to testify before House lawmakers on Thursday.
The
event is sure to be a spectacle. But as regulators debate their next
steps, lawmakers have an opportunity to press key actors on issues of
importance for anyone who buys or sells stocks on public markets.
Representatives could go in a lot of directions. Here's what remains top of mind:
- Are gaming elements of apps like Robinhood encouraging investors to take uninformed risks? What about easy access to leverage and higher-risk investing strategies like options trading?
- Robinhood sells its order flow to market makers like Citadel Securities, which then executes the trades. Does this practice create conflicts of interest?
- What steps could be taken to make short selling, which allows investors to profit off stock declines, more transparent?
- Have regulators done enough to guard against market manipulation on social media?
- How close were manic markets to spinning out of control? Could the GameStop drama have triggered broader systemic risk?
Lawmakers
don't expect to get to the bottom of all this in one day. Congresswoman
Maxine Waters, who chairs the committee, told CNN Business she will likely hold a total of three hearings on the matter.
"The
size of the occurrence is such that we need to put substantive time on
it, to make sure we understand exactly what happened, how it happened
and whether or not there are conflicts of interest, collusion or other
things that need to be taken care of," Waters said in an interview with
my CNN Business colleague Matt Egan.
Waters,
a Democrat from California, sees Thursday's hearing as "informational,"
while a second hearing could bring in regulatory experts. The third
would likely be focused on potential legislation.
Big
picture: The GameStop frenzy dredged up a lot of crucial yet
complicated questions about market structure, consumer protections and
trading in the age of commission-free apps and passionate internet
communities. This hearing may clarify some concerns while raising
others. Either way, it's a step toward channeling the attention into
something constructive.
Facebook blocks users in Australia from sharing news
All eyes in the tech and media world are on the showdown between Australian lawmakers and Facebook.
The latest: Facebook (FB) said Wednesday that people and publishers in Australia cannot share or view news
from local and international outlets, my CNN Business colleague Kerry
Flynn reports. The announcement is a response to proposed legislation in
Australia that would force tech platforms to pay news publishers for
content.
"What
the proposed law introduced in Australia fails to recognize is the
fundamental nature of the relationship between our platform and
publishers," Campbell Brown, Facebook's vice president of global news
partnerships, wrote in a blog post. "Contrary to what some have
suggested, Facebook does not steal news content. Publishers choose to
share their stories on Facebook."
The move set off chaos
in the country, as fire and emergency services, domestic violence
charities and state health agencies were inadvertently swept up in the
abrupt policy change.
While Facebook appeared intent on calling lawmakers' bluff, Google (GOOGL) signaled it could cave to the pressure.
Google
and News Corp, the Rupert Murdoch-owned news conglomerate, announced a
three-year deal under which the tech giant will pay to license News Corp
content. (The company dominates much of the media landscape in
Australia and the United Kingdom. It also owns the Wall Street Journal
and New York Post in the United States.)
The
takeaway: Regulation forcing Big Tech to pay news publishers is being
closely watched around the world, both by companies that could be
impacted and regulators now weighing whether to follow in Australia's
footsteps.
"There
is not a single serious digital regulator anywhere in the world who is
not examining the opacity of algorithms, the integrity of personal data,
the social value of professional journalism and the dysfunctional
digital ad market," News Corp chief Robert Thomson said earlier this
month.
The Musk effect is another sign of wild markets
Why
worry about earnings growth and valuations when you can just plow your
money into whatever company billionaire Elon Musk happens to tweet
about?
The Tesla and SpaceX CEO has boosted stocks and cryptocurrencies thanks to musings on his Twitter feed, which currently has more than 47 million followers, my CNN Business colleague Paul R. La Monica reports.
See here: Shares of GameStop (GME)
popped one day after a Musk tweet that read simply "Gamestonk" and
included an embedded link to Reddit's WallStreetBets group. Canadian
e-commerce firm Shopify (SHOP)
rose after Musk called it "great" and said SpaceX used it. (He didn't
say for what.) Etsy moved higher after Musk wrote about buying something
for his dog on the site.
Perhaps
most notably, investors mistook a Musk tweet to "use Signal," the
privately-held encrypted messaging service, as a reason to buy up shares
in the unrelated Signal Advance, a tiny tech company that makes medical
detection devices. Its stock promptly sank after the confusion cleared
up.
The
huge response to seemingly random missives is indicative of Musk's star
power. But it's also another sign of how frothy markets have become,
with investors confident that such bets — or any bets, really — are due
to pay off.
Even
professionals that are generally bullish on markets warn that investors
should consider getting a bit pickier to avoid getting swept up in the
euphoria.
"This
is reminiscent of the late 1990s, with a lot of retail interest in the
markets," said Matt Stucky, an equities portfolio manager at
Northwestern Mutual Wealth Management Company. "People have to be
disciplined about what they own and why they own it."
Up next
The House Financial Services Committee kicks off its GameStop hearing at 12 p.m. ET. Follow CNN Business for live coverage.
Also today:
Coming
tomorrow: IHS Markit publishes its Purchasing Managers' Indexes for
February, providing a crucial look at the health of the US economy.
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