U.S. Rep. Maxine Waters, chair of the Committee on Financial Services, and Rep. Al Green, chair of the Subcommittee on Oversight and Investigations, released a report Friday (June 24) on the “meme stock” phenomenon involving GameStop and its impact on the economy.
The “meme stocks” became popular in January 2021, in which numerous retail investors bought huge amounts of them, making things much more volatile for the institutional investors betting against the stocks.
Waters wanted to do a “deep dive” into this, which has now been completed. Some of the key findings included that brokerage app Robinhood used “troubling” business practices and had a business culture that put quick growth above stability.
It also found that the broker-dealers looking at the most severe concerns were the ones putting the most expansive trading restrictions in place.
Additionally, many firms the committee spoke with have no explicit plans to change their policies on how they’ll meet requirements during extreme market volatility, or how they’ll adopt trading restrictions if they have to.
“Last year’s meme stock market frenzy raised important questions about the fairness of our financial markets, the gamification of trading, the treatment of retail investors, and so much more,” Waters said in a House press release. “In response to those events, my Committee held multiple hearings — including the first of them with CEOs from Robinhood, Citadel Securities, and many others — to get to the bottom of the role these companies played in the volatility and disruption in the stock market in January 2021.”
Going forward, the committee recommended policy changes designed to help regulators better understand the mass amounts of new retail traders. It also recommended better supervision of retail-facing superbrokers, as well as adding more capital and liquidity requirements and oversight.
PYMNTS wrote last year that the Securities and Exchange Commission (SEC) had begun attempting to address gamification, which online brokers have used to draw in subscribers.
At the time, SEC Chair Gary Gensler said the regulator wanted to look into how investors could be misled by projections of what they’d make with those brokerages — in which the risk is higher than the companies claim.