Page 40 - Investment Advisor March 2021

and squeezing [the hedge funds] out?” rities on Robinhood without restriction.” would be upset by not being able to make
Lynch said. Tenev went on to say that “there’s been the trades, “it’s not at all unusual for bro-
She added: “It will be interesting to an unprecedented market environment kerage platforms to have to restrict trading
see if they are the Robinhood-type trad- the past couple of weeks, where there’s in certain securities or under certain cir-
ers (are individual retail traders) or if been concentrated investing around stocks cumstances when situations are unusual.”
they are professionals … professionals that have been very, very popular on social However, “that’s not to say that inves-
trying to push out the competition, then media; so you’re seeing kind of an inter- tigations won’t turn up facts that we
you have a very interesting case for the section of social media and finance and don’t know right now. Robinhood’s deci-
regulators to step in with enforcement individual retail investors participating in sion, or about Schwab’s decision. … But
action against those individuals.” the markets like they’ve never before.” this idea of restricting the trading is not
Matthew Bacon, an advisor with Robinhood’s decision “was a technical unusual,” Schulp said.
Carmichael Hill in Gaithersburg, Md., and operational decision that we made With the rapid increase in GameStop’s
told me in an early February email that because Robinhood as a brokerage has price and the volatility in the price, “the
the WallStreetBets “Reddit clearing company … required
thread should ABSOLUTELY With the rapid increase in a significant amount more
be investigated.” capital from these brokerage
Stated Bacon: “I wouldn’t GameStop’s price and the volatility platforms in order to make
be surprised if some of the in the price, “the clearing company the clearing process work.”
posts came from hedge funds During the two days it takes
or other institutional players. … required a significant amount to clear a stock trade, “the risk
[Former MassMutual advi- more capital from these brokerage and the liability for that trade
sor] ‘Roaring Kitty’ is a CFA stays on the books of that bro-
with some serious investing platforms in order to make the kers and as the stock prices
chops but not a represen- increases and gets a little bit
tative of a major institution clearing process work.” wild, it costs more to keep
playing the short squeeze. that liability for the brokerage
The investigation should —Jennifer Schulp, Cato Institute platform,” Schulp explained.
focus on who is attempting Toes, who interviewed
to lead the retail market.” financial requirements, including clear- former SEC Commissioner Michael
William Galvin, Massachusetts’ top inghouse deposits that we have to make Piwowar during the STA podcast, said
securities regulator, is investigating to various clearinghouses, some of these the current T+2 “settlement process
Keith Patrick Gill, the person behind requirements fluctuate based on volatility does appear to be antiquated.”
the Roaring Kitty YouTube streams in the markets, and in this current unprec- While serving as acting SEC chairman
that, combined with a string of posts by edented environment can be substantial.” in 2017, Piwowar finalized a rule to change
Reddit user DeepF***ingValue, drove Schwab insisted in a statement that the settlement date for securities transac-
a sudden increase in GameStop stock neither it nor TD Ameritrade “halted tions to T+2 from T+3. “That was the easi-
trading, slamming hedge funds that had buying or selling ANY stocks” the week est regulatory layup in the history of the
bet against the struggling retailer. of Jan. 25. “Neither firm restricted buy- commission,” said Piwowar, now execu-
The Massachusetts Securities Division ing or selling basic options.” tive director of the Milken Institute Center
“is looking into whether or not MassMutual Both firms did, though, “adjust mar- for Financial Markets. “We had been at
should have been aware of Mr. Gill’s activi- gin requirements on select stocks to T+3 for 22 years; we were behind the rest
ties,” a MassMutual spokesperson said. ensure clients had sufficient assets of the world,” he said. It was a “win, win,
to pay for stock purchases … and also win to shorten the settlement cycle.”
TENEV’S TAKE restricted certain advanced options With the changes in technology four
Vlad Tenev, co-founder and CEO of strategies,” Schwab explained. years later, “is it appropriate to look at
Robinhood Markets, told Bloomberg shortening the settlement cycle now”
Technology’s Emily Chang in a Jan. 28 MOVING TO T+1? to T+1? Piwowar asked rhetorically. “Of
interview that Robinhood “to be clear, Jennifer Schulp, director of Financial course it is. This should be one of the
didn’t restrict trading; we restricted Regulation Studies at The Cato’s Institute’s more high priority things the commis-
buying on about 13 securities on the Center for Monetary and Financial sion works on.”
platform. Customers that held securities Alternatives, noted on an early February
could sell them and customers were also podcast held by Cato that while “it’s com- Washington Bureau Chief Melanie Waddell can
able to trade the thousands of other secu- pletely understandable” that investors be reached at [email protected].

38 INVESTMENT ADVISOR MARCH 2021 | ThinkAdvisor.com