The House Financial Services Committee is holding its second hearing on the GameStop frenzy on Wednesday, with a range of experts expected to expound on what the saga says about the stock market’s plumbing.
The hearing appears likely to have a more wonkish tone than the committee’s first hearing on GameStop, which put a spotlight on Robinhood, the trading app at the center of a remarkable rally that sent shares of the struggling video game retailer up by over 1,600 percent in January,
Witnesses will include stock exchange officials, market analysts, former regulators and academics. Prepared testimony suggests the witnesses will focus on what — if any — deficiencies in the American stock trading system were revealed by the surge of trading in GameStop.
Sal Arnuk, co-founder of trading firm Themis Trading, plans to spotlight the growing role of payment-for-order-flow, where retail brokerage houses such as Robinhood channel customer orders to specific trading firms in exchange for payments.
“These practices create a massive incentive for such brokers to sell their clients orders to sophisticated trading firms uniquely tooled to profit off of them,” Mr. Arnuk will say, according to preliminary testimony released by the House committee. “This is a needless conflict that can harm retail investors, and it degrades the integrity of the market ecosystem as a whole.”
Other witnesses, such as Alexis Goldstein, a senior policy analyst at Americans for Financial Reform, will underscore the growing dominance of the trading firms that pay retail brokerages to execute their orders.
Two major market-makers, Citadel Securities and Virtu Financial, “execute a larger volume of U.S. stocks than the New York Stock Exchange,” she said in prepared testimony, urging regulators to look at whether their growth has worsened the prices that are available to investors on the public exchanges.
The hearing is to begin at 10 a.m. Other participants include Michael Blaugrund, chief operating officer of the New York Stock Exchange; Vicki L. Bogan, a Cornell University professor who focuses on the financial and investment behavior of households; Dennis Kelleher, the chief executive officer of Better Markets, which advocates for market reforms; and Michael Piwowar, executive director of the Milken Institute Center for Financial Markets and a former S.E.C. commissioner.
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