“
‘What I would like to point out here is that we have come dangerously close to the collapse of the whole system, and the public seems to be completely unaware of that, Congress and the. regulators among them. ‘
”
Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc., briefed CNBC on Wednesday about the tough situation in which the market stood at the end of January when individual investors were at an all-time high. Social media platforms come together to create a handful of heavily shortened stocks, including bricks. -and-mortar GameStop Corp. retail videogame. GME,
and AMC Entertainment Holdings AMC film chain,
to high levels in the air, with impressive waves recording throughout the market.
As Peterffy explained to MarketWatch in an interview last month, the so-called short-lived tensions mocked cleanhouses and led to a number of breaches trying to sue themselves. protection by raising margin requirements and capping trading in selected stocks to prevent wider chaos. in markets.
Peterffy’s comments come ahead of an expected midday hearing on Thursday where the House Financial Services Committee is to grind executives from Robinhood Market, Melvin Capital and owner-owned Kenneth Griffin, who hedge fund Citadel LLC and its securities trading arm Citadel Securities. The social media company Reddit, and Keith Gill, an independent investor who suddenly gained fame during a GameStop affair, will be questioned about their roles in frenzied trading that caught the public and helped with a short time to retail in the Dow DJIA Jones business average,
the S&P 500 SPX,
and the Nasdaq Composite COMP,
indexes.
Cleanhouses play a vital role in markets ranging from equities to products. They stand between the parties at a trade to promise payment if they go back.
Read: GameStop frenzy puts clean houses in the spotlight as investors measure fears of systemic risk
That crucial piece of financial market plumbing was at the heart of it, Peterffy said.
Peterffy said that existing protocols around shortening can lead to losses in the stock market because, in many cases, the company’s shares targeted by short sellers are higher than the total shares. remains to be paid.
“As the price goes higher, the basic summaries of the brokers, the brokers now have to cover themselves, [and] that pushes the price further up, so the brokers refuse the clearing house, and you end up with a complete mess that is impossible to sort out, ”said the Brokers chairman. Interactive with CNBC. “That’s almost what happened.”
In prepared evidence ahead of his hearing, Robinhood Chief Executive Vlad Tenev gave his overview of the January action: “What we experienced last month was astounding, and the trade limits we imposed were on it. GameStop and other stocks necessary to let us keep going. meet the greenhouse investment requirements we pay to support customer trading on our platform. “
The head of Robinhood says the bankruptcy, which pays for itself as a supplier to the average investor, says its daily value at risk, or VAR, has gone up nearly 600% from $ 202 million on January 25 to $ 1.4 billion by January 28.
Robinhood Markets Evidence to House Financial Services Committee
The increase in its investment requirements prompted Robinhood to raise $ 3.4 billion in additional capital to allow customers to resume conventional trading across its platform, the CEO said.
Check out: One million Reddit owner investor ready to tell Congress ‘I’m as bullish as ever’ on GameStop version
Peterffy said that lawyers and regulators can solve the current problems of short selling by demanding more frequent data on short selling and increasing margin requirements, or the leverage used, on short stocks.