DUBAI, July 2 (Reuters) – Saudi Arabia plans to target international transit passenger traffic with its new national airline, going head-to-head with Gulf giants Emirates and Qatar Airways and opening up a new front in simmering regional competition.
Crown Prince Mohammed bin Salman, who is pushing economic diversification to wean Saudi Arabia off oil revenues and create jobs, announced a transportation and logistics drive on Tuesday aimed at making the kingdom the fifth-biggest air transit hub.
Two people familiar with the matter said the new airline would boost international routes and echo existing Gulf carriers by carrying people from one country to another via connections in the kingdom, known in the industry as sixth-freedom traffic.
The transport ministry, which has not released details of the plans, did not respond to a Reuters request for comment.
The strategy marks a shift for Saudi Arabia whose other airlines, like state-owned Saudia and its low cost subsidiary flyadeal, mostly operate domestic services and point-to-point flights to and from the country of 35 million people.
The Saudi expansion threatens to sharpen a battle for passengers at a time when travel has been hit by the coronavirus pandemic. Long-haul flights like those operated by Emirates and Qatar Airways are forecast to take the longest to recover.
Riyadh has already moved to compete with the UAE, the region’s business, trade and tourism hub. The Saudi government has said that from 2024 it would stop giving contracts to firms that do not set up regional headquarters in the kingdom.
“Commercial competition in the aviation industry has always been fierce, and regional competition is heating up. Some turbulence in regional relations is on the horizon,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute.
Dubai, the world’s largest international air travel hub, has announced a five-year plan to grow air and shipping routes by 50% and double tourism capacity over the next two decades.
Riyadh has already moved to compete with the UAE, the region’s business, trade and tourism hub. The Saudi government has said that starting 2024 it would stop giving contracts to firms that do not set up regional headquarters in the kingdom.
Saudi Crown Prince Mohammed bin Salman attends a session of the Shura Council in Riyadh, Saudi Arabia, November 20, 2019. Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS
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Prince Mohammed is trying to lure foreign capital to create new industries including tourism, with ambitions to increase overall visitors to 100 million by 2030 from 40 million in 2019.
“Saudi Arabia has the ability to push forward with its aviation and tourism strategy when others will be retreating and retracting,” aviation consultant Brendan Sobie said.
“It is a risky strategy, but also sensible given its position and overall diversification objective.”
TOURISM PUSH
However, any airline requires substantial start-up capital and experts warn that if Saudi Arabia’s ambition is to compete on transit flights it may have to contend with years of losses.
Saudi Arabia’s large population generates direct traffic that could cushion losses as a new airline targets international transit traffic, aviation consultant John Strickland said.
Emirates reported a record $5.5 billion annual loss last month with the pandemic forcing Dubai to step in with $3.1 billion in state support.
Etihad Airways has scaled back its ambitions after it spent billions of dollars to ultimately unsuccessfully compete in building a major hub in United Arab Emirates capital Abu Dhabi.
People familiar with the matter said the new airline could be based in the capital Riyadh, and that sovereign wealth fund PIF is helping set it up.
PIF did not respond to a request for comment.
Saudi Arabia is developing non-religious tourism with mega projects backed by PIF. It has launched social reforms to open up the country, the birthplace of Islam, including allowing public entertainment.
Reporting by Alexander Cornwell; Editing by Tim Hepher and Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.
CAIRO, June 29 (Reuters) – Saudi Arabia’s Crown Prince Mohammed bin Salman announced plans on Tuesday to launch a second national airline as part of a broader strategy to turn the kingdom into a global logistics hub as it seeks to diversify from oil.
The creation of another flag carrier would catapult Saudi Arabia into the 5th rank globally in terms of air transit traffic, official state media reported, without giving details on when and how the airline would be created.
Prince Mohammad has been spearheading a push for Saudi Arabia, the biggest Arab economy and the largest country in the Gulf geographically, to boost non-oil revenues to about 45 billion riyals ($12.00 billion) by 2030.
Making the kingdom a global logistics hub, which includes the development of ports, rail and road networks, would increase the transport and logistics sector’s contribution to gross domestic product to 10% from 6%, state news agency SPA said.
“The comprehensive strategy aims to position Saudi Arabia as a global logistics hub connecting the three continents,” Prince Mohammed was quoted as saying in the SPA report.
“This will help other sectors like tourism, haj and umrah to achieve their national targets.”
The addition of another airline would increase the number of international destinations from Saudi Arabia to more than 250 and double air cargo capacity to more than 4.5 million tonnes, the SPA report said.
With current flag bearer Saudi Arabian Airlines (Saudia), the kingdom has one of the smallest airline networks in the region relative to its size. Saudia has struggled with losses for years and like global peers, has been hit hard by the coronavirus pandemic.
Local media reported earlier this year that the kingdom’s sovereign wealth fund, the Public Investment Fund, (PIF), planned to build a new airport in Riyadh as part of the new airline launch, without giving further details.
The fund is the main vehicle for boosting Saudi Arabian investments at home and abroad as the young prince, known in the West as MbS, seeks to diversify the kingdom’s oil-heavy economy through his Vision 2030 strategy.
($1 = 3.7503 riyals)
Reporting by Nayera Abdallah and Alaa Swilam; Writing by Ghaida Ghantous and Marwa Rashad; Editing by Sonya Hepinstall, Marguerita Choy and Jane Wardell
Our Standards: The Thomson Reuters Trust Principles.
Shares of Tesla Inc (TSLA.O) fell more than 4% on Tuesday as its first-quarter earnings results failed to alleviate investor concerns about its lofty evaluation, as well as a prolonged global chip shortage and rising competition.
The electric car maker’s quarterly revenue made it barely past estimates, relying mostly on sales of environmental credits sold to other automakers and the liquidation of 10% of its $1.5 billion bitcoin investment.
“Tesla’s performance was OK but it wasn’t a Elon Musk slam dunk…I don’t think people are into Tesla because of bitcoin,” said Eric Schiffer, CEO of private equity Patriarch Organization, which has an underweight stance on Tesla.
“Investors are rejecting the stock short term,” he said, saying Tesla’s performance has fallen short of catching up its “astronomical valuation.”
Musk, the company’s CEO, did earn options payouts worth $11 billion based on targets reached by the company.
Shares of the automaker closed down 4.5% at $704.74, down more than 20% from its intraday high reached in January. They had surged more than 700% last year, making Tesla the world’s most valuable automaker.
Tesla posted record deliveries in the first quarter despite a global chip shortage that has slammed auto sector rivals. But analysts said a prolonged shortage of chips and batteries could threaten to dampen its growth prospect.
“A global shortage of computer chips is expected to limit production from all manufacturers in the immediate future, and Tesla won’t be exempt,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“Given the ongoing importance of its production ramp up, it may even be more heavily impacted.”
Regarding supply chain instability, Tesla Chief Financial Officer Zachary Kirkhorn said on Monday, “We believe that this landscape is improving, but it does remain difficult, and it’s an evolving situation.”
Roth Capital Partners said it holds a neutral rating on Tesla, saying that Tesla’s large premium “seems to rest on the specious assumption that the hundreds of EVs slated for launch by ’25 will all be flops.”
“Tesla does not operate in a vacuum,” it said in a report.
Our Standards: The Thomson Reuters Trust Principles.
WeWork has agreed to merge with a special-purpose acquisition company, according to people familiar with the matter, in a deal that would take the shared-office provider public nearly two years after its high-profile failure to launch a traditional IPO.
The planned merger with the BowX Acquisition Corp. SPAC would value WeWork at $9 billion including debt, the people said. WeWork would also raise $1.3 billion, including $800 million in a so-called private investment in public equity, or PIPE, from Insight Partners, funds managed by Starwood Capital Group, Fidelity Management and others, the people said.
In January, The Wall Street Journal reported that WeWork was in talks to combine with BowX.
WeWork is a big player in the market for flexible office space. It signs long-term leases with landlords, then after renovating a space and furnishing it, subleases small offices or even whole buildings to tenants for as little as a month at a time. Should the merger close in the coming months as expected, it would cap what has been a long and bumpy road toward a listing for WeWork.
The company is taking advantage of a torrent of new SPACs to accomplish what it failed to pull off in 2019, when public investors rejected the money-losing company and its visionary yet erratic leader, Adam Neumann, who subsequently resigned as chairman and CEO. Further hit by the coronavirus pandemic, which has emptied out offices throughout the country, WeWork has closed locations, renegotiated leases and cut thousands of jobs in a bid to slash expenses.
Widely followed investor Cathie Wood is about to recoup some of her recent sharp losses as tech stocks rebounded Tuesday after a brutal correction triggered by surging bond yields.
Wood’s flagship active exchange-traded fund Ark Innovation ETF (ARKK) climbed 4.8% in premarket trading on Tuesday. Tesla, the fund’s biggest holding, is up 5.2% in early trading. Among other holdings, Zoom Video is up 4.2%, while Palantir gained 3.7%.
Another big holding Invitae is up 10% in premarket trading Tuesday. She told CNBC on Monday that the company, which operates in the molecular diagnostics space, is one of the firm’s most under-appreciated holdings.
The rebound in ‘ARKK’ came amid a 2% jump in Nasdaq 100 futures as bond yields stabilized. The Nasdaq Composite dropped 2.4% on Monday, falling into correction territory, or more than 10% from its recent high.
Wood, who focuses on innovative technology, has seen stocks fitting her strategy get hammered lately amid a big market rotation out of high-flying tech and into cyclical value stocks in the face of higher rates. The fund lost 5.8% on Monday alone, pushing its 2021 losses to 11%.
High-growth names are hit particularly hard as rising rates make their future profits less valuable today, making the stocks’ lofty valuations less justifiable. Many of her big stakes experienced steep losses over the past month: Tesla has shed 33%, Zoom Video has lost 27%, Palantir is down 41%.
The Ark Investment Management founder and CEO said Monday she is not concerned about the recent drop in her funds and she believes over time her disruptive strategy will pay off.
“Right now the market is broadening out and we think in an underlying sense the bull market is strengthening and that will play to our benefit over the longer term,” said Wood said on CNBC’s “Closing Bell” on Monday.
“We are getting great opportunities” in the sell-off to buy the pure play names in the funds, added Wood.
Wood gained a wide following on Wall Street after a banner 2020 that saw her flagship fund return nearly 150% as the pandemic accelerated innovation trends. The fund’s asset under management has ballooned to more than $17 billion.
Less than a year ago, Dolly Parton donated $1 million to help her friend, Dr. Naji Abumrad, develop the Moderna COVID-19 vaccine at Vanderbuilt University. On Tuesday, the country music legend told the world she “got a shot of her own medicine,” as Abumrad gave Parton her first dose of the vaccine.
Parton tweeted a video of herself getting vaccinated on Tuesday, saying she and Abumrad have been “friends forever.”
“I thought it was only appropriate that you should be the one to give me my shot today,” she said.
Tennessee began allowing vaccinations for those aged 70 and older at the beginning of February. Parton is 75.
Dolly gets a dose of her own medicine. @VUMChealth pic.twitter.com/38kJrDzLqC
— Dolly Parton (@DollyParton) March 2, 2021
While getting the vaccine itself was the main purpose for the event, Parton did not shy away from using the moment to sing a vaccine-themed version of her hit song “Jolene” in an effort to encourage others to get vaccinated.
“Vaccine, vaccine, vaccine, vaccine, I’m begging of you please don’t hesitate,” she sang. “Vaccine, vaccine, vaccine, vaccine, ’cause once you’re dead, that’s a bit too late.”
Vanderbilt University Medical Center tweeted that, “Dolly’s generous support helped fund early research at Vanderbilt Health into what is now a vaccine that’s helping end the pandemic.”
We love hearing @DollyParton sing “vaccine, vaccine, vaccine, vacciiiiiiiinnnnne” on our campus today, just before she got hers. Dolly’s generous support helped fund early research at Vanderbilt Health into what is now a vaccine that’s helping end the pandemic. THANK YOU, DOLLY! https://t.co/nytiC2j3hz
— Vanderbilt Health (@VUMChealth) March 2, 2021
Parton also used her platform on Tuesday to make a jab at those who may be planning to avoid getting vaccinated.
“I’m old enough to get it and I’m smart enough to get it. …The sooner we get to feeling better, the sooner we are going to get back to being normal,” Parton said. “So I just wanna say to all of you cowards out there, don’t be such a chicken squat, get out there and get your shot.”
Moderna was the second COVID-19 vaccine authorized for emergency use in the U.S. and, according to the Centers for Disease Control and Prevention, is more than 94% effective at preventing COVID-19 in people who receive both doses.
HONG KONG (Reuters) – Chinese private equity firm Boyu Capital, an investor in Chinese technology titans including billionaire Jack Ma’s Ant Group, is raising a new, China-focused fund targeting as much as $6 billion, three people with knowledge of the matter said.
Its fifth and largest U.S. dollar-denominated fund is likely to close in the near term, said one of the people, who declined to be identified as the information is confidential.
Boyu did not immediately respond to a request for comment.
The fundraising by a firm widely associated with tech startups amounts to a high-profile test of investor appetite at a time when heightened oversight of China’s tech giants clouds the near-term outlook of those companies.
It follows authorities’ November suspension of Ant’s Shanghai and Hong Kong dual listing, which delayed the hefty returns early investors such as Boyu could have expected from the world’s biggest initial public offering (IPO).
The financial technology giant was set to raise $37 billion at a valuation of $315 billion. Since the suspension, China has sharpened oversight of its home-grown champions which has also exposed their investors to more public scrutiny.
A central bank official said Ant’s IPO was suspended to safeguard consumers and investors. Ant has since agreed a restructuring plan with regulators, Reuters reported this month.
ALIBABA AID
Boyu was founded in 2010 by, among others, Alvin Jiang, grandson of former President Jiang Zemin. The firm has offices in Beijing, Shanghai, Hong Kong and Singapore, and invests in consumer and retail, financial services, healthcare and media and technology sectors, its website showed.
It is known for its 2012 investment in Alibaba Group Holding Ltd which helped Ma buy back half of Yahoo! Inc’s 40% stake in the e-commerce firm, Reuters has reported.
At $6 billion, Boyu’s new fund would be one of the region’s largest focusing on China. It last raised $3.6 billion in 2019.
Past investors include Hong Kong’s richest man Li Ka-shing and Singapore state investors Temasek Holdings Ltd and GIC Pte Ltd, Reuters has reported. The New York Common Retirement Fund has also been an investor, showed the website of the state comptroller.
Private equity managers in Asia raised $108 billion for 481 new funds last year, down 45% by dollar value from 2019, showed Preqin data, as the COVID-19 pandemic dampened fundraising.
Activity has picked up in 2021 with $21 billion raised via 56 funds so far, the data showed.
TECH INVESTMENTS
Boyu invested in Ant’s $4.5 billion fundraising in 2016 and $14 billion funding round two years later. In the interim, Ant’s valuation leapt from $60 billion to $150 billion.
The private equity firm has invested in other booming Chinese tech and healthcare startups in recent years that generated lucrative returns，two of the people said.
Portfolio firms include ride-hailer Didi Chuxing, artificial intelligence (AI) firm MegVii and live-streaming app operator Kuaishou Technology, according to media reports and public information.
In January, it participated in a $700 million fundraising by AI firm 4Paradigm, Dealogic data showed.
(Reporting by Kane Wu; Editing by Sumeet Chatterjee and Christopher Cushing)
Israel “Izzy” Englander, chairman and chief executive officer of Millennium Management LLC.
Ronda Churchill | Bloomberg | Getty Images
The 25 highest paid hedge fund managers made a record $32 billion in 2020, up more than 50% over 2019, according to Institutional Investor’s Rich List.
A total of 15 hedge fund managers made $1 billion or more, compared with only eight in 2019. The big gains during the pandemic, coupled with the public debate over hedge funds in the wake of the GameStop controversy, is likely to draw criticism from lawmakers and the public over hedge fund pay and fairness in financial markets.
The top earner was Israel “Izzy” Englander of Millennium Management, earning $3.8 billion. His flagship fund was up 26% last year, which was its best return in 20 years. Like many of the top-performing funds last year, Millennium relies more on stock picking than quantitative strategies using computer algorithms.
In second place is Jim Simons of Renaissance Technologies, who earned $2.6 billion. His investors, however, didn’t do as well. Renaissance Technologies’ three main funds for outside investors were down 20% to 30%, according to report. But its Medallion fund, which is mainly for employees, was up 76%. Simons retired as chairman on Jan. 1.
Chase Coleman of Tiger Global came in third place, with a $2.5 billion payday. The fund was an early investor in tech stocks and overseas plays that did well during the pandemic, giving his fund a 48% return. His partner Scott Shleifer, the head of Tiger’s private equity business, was tied for eighth with $1.5 billion. Shleifer just bought the most expensive home ever sold in Florida, paying more than $130 million for a newly built mansion in Palm Beach.
Ken Griffin of Citadel, who is at the center of the GameStop debate, came in fourth, with $1.8 billion as his fund was up 24%. Steve Cohen of Point72 Asset Management was tied for fifth, along with Mets owner David Tepper, both at $1.7 billion.
JERUSALEM — When a young Israeli woman was released from detention in Syria this week, after having been arrested for crossing illegally into Syria, the official story was that she had been the beneficiary of a straightforward prisoner swap. In return for her freedom, the Israeli government announced, she had been exchanged for two Syrian shepherds captured by the Israelis.
But if this deal between two enemy states, which have never shared diplomatic relations, sounded too swift and easy, it was. In secret, Israel had in fact also agreed to a far more contentious ransom: the financing of an undisclosed number of coronavirus vaccines for Syria, according to an official familiar with the content of the negotiations.
Under the deal, Israel will pay Russia, which mediated it, to send Russian-made Sputnik V vaccines to the regime of President Bashar al-Assad of Syria, the official said. Israel has given at least one vaccine shot to nearly half its population of 9.2 million, while Syria — now entering its 11th year of civil war — has yet to begin its vaccine rollout.
The Israeli government declined to comment on the vaccine aspect of the deal, while a Syrian state-controlled news outlet, the Syrian Arab News Agency, denied that vaccines were part of the arrangement. Asked about the vaccines in a television interview on Saturday night, Prime Minister Benjamin Netanyahu of Israel evaded the question, saying only that no Israeli vaccines were being sent to Syria.
“We’ve brought the woman, I’m glad,” Mr. Netanyahu said. He expressed thanks to President Vladimir V. Putin of Russia and said, “I won’t add any more.”
The deal constitutes a rare moment of uneasy cooperation between two states that have fought several wars and still contest the sovereignty of a tract of land, the Golan Heights, that Israel captured from Syria in 1967.
It also highlights how vaccines are increasingly a feature of international diplomacy. And it reflects a vast and growing disparity between wealthy states, like Israel, that have made considerable headway with coronavirus vaccines and may soon return to some kind of normality — and poor ones, like Syria, that have not.
Among Palestinians, news reports about the Israel-Syria deal have increased frustrations about the low numbers of vaccines provided by Israel to Palestinians living in the occupied territories. Israel has supplied only a few thousand vaccines to the approximately 2.8 million Palestinians living the occupied West Bank, and last week the Israeli government briefly delayed the delivery of a first batch of vaccines to Gaza, where nearly two million people live.
Israel maintains that the Oslo Accords absolve it of a responsibility to provide for Palestinian health care. But rights campaigners and Palestinians cite the fourth Geneva convention, which obliges an occupying power to coordinate with the local authorities to maintain public health within an occupied territory.
Israeli officials have said they must vaccinate their own population before turning to the Palestinians. But the Syria deal sends a different message, said Khaled Elgindy, a researcher and former adviser to the Palestinian leadership.
“Israel is willing to provide vaccines to Syrians outside their borders, but at the same time not provide them to an enormous occupied population that they are legally responsible for,” Mr. Elgindy said. “That seems to be sending a message that they are deliberately trying to avoid their legal responsibility to look after the welfare of that occupied population.”
Among Israelis, the prisoner swap has raised concerns about how a civilian was able to cross the highly policed and tense border with Syria undetected by the Israeli authorities.
The woman, 23, crossed into Syria near Mount Hermon on Feb. 2 without initially being spotted by Israeli or Syrian forces, the official said. Her name currently cannot be published, by court order.
Israel learned that she had disappeared only when her friends informed the police that she was missing. She entered Syrian detention only after a Syrian civilian who approached her realized she was Israeli and called the police.
Israel then asked Russia — a Syrian ally with a strong military presence in the country — for help in mediating her release. Russia and Israel have coordinated during similar episodes in the past. In 2016, Russia helped mediate the return of an Israeli tank seized by Syrian forces in 1982 in Lebanon. In 2019, Moscow facilitated the return of the body of an Israeli soldier killed during the same clash, Zachary Baumel.
The woman grew up in an ultra-Orthodox family in a settlement in the West Bank, and she was said to have a history of attempting to illegally enter Israel’s Arab neighbors — once in Jordan, and once in Gaza. Both times, she was apprehended by Israeli forces, returned, questioned and warned not to do so again.
Israeli negotiators sought to act quickly, to avoid a replay of the crisis that followed the disappearance in Gaza of Avera Mengistu, a man with a history of mental illness who marched into the strip in 2014 and has been held ever since by Hamas, the militant group, which frequently raises the price for his release.
Mr. Netanyahu spoke twice directly with Mr. Putin, while the Israeli national security adviser, Meir Ben-Shabbat, communicated with his Russian counterpart, Nikolai Patrushev.
The Syrians first demanded the release of two Syrian residents of the Golan Heights imprisoned in Israel, but that arrangement broke down after it turned out that the two did not wish to return to Syria.
Israel then offered the release of the two shepherds, and at some point in negotiations, the possibility of vaccines was raised.
The Israeli cabinet voted to agree to the terms of the deal on Tuesday, the same day that the 23-year-old was flown to Moscow. Following further negotiations between Israeli and Russian officials, she was returned to Israel on Thursday.
In Moscow, officials had offered no confirmation of such an arrangement by late Saturday, and Russian news media carried only reports citing Israeli publications.
But the Russian government has for months been deftly using its vaccine in diplomacy from Latin America to the Middle East. As recently as Thursday Mr. Putin’s special envoy to Syria, Alexander Lavrentiev, suggested that Russia would be supplying its Sputnik V vaccine to Syria in an interview with the Tass news agency.
Patrick Kingsley reported from Jerusalem, Ronen Bergman from Tel Aviv and Andrew E. Kramer from Moscow. Hwaida Saad contributed reporting from Beirut and Carol Sutherland from Moshav Ben Ami, Israel.
Lawmakers grilled Robinhood CEO Vlad Tenev for more than five hours Thursday over the online brokerage firm’s role in frenzied buying last month of GameStop shares and other beaten down stocks. Although Tenev apologized for his company’s decision to restrict trading in the video game retailer and other high-flying shares, he also defended its business model as one that benefits average investors.
Tenev was joined by two hedge fund managers, Citadel CEO Kenneth Griffin and Melvin Capital CEO Gabriel Plotkin, as well as Reddit CEO Steve Huffman, Reddit investor Keith Gill and the Cato Institute’s Jennifer Schulp. Together, the group faced questions about the intersection of social media, hedge funds and small investors that use Robinhood.
The wild volatility in GameStop’s stock — which soared nearly 3,000% in January — has sparked criticism from lawmakers about Robinhood’s business practices and its links to Wall Street. While Robinhood touts free trading to small investors, it makes its money by routing orders to market makers including Citadel Securities. Tenev said that the company receives more than 50% of its income from such transactions.
“I’m sorry for what happened,” Tenev said, adding that the company is reviewing its processes. “I apologize. I’m not going to say Robinhood did everything perfect and we didn’t make mistakes in the past.”
GameStop shares soared last month as ordinary investors, fueled by Reddit’s WallStreetBets message board, piled into the stock. Face with what Robhinhood said was a need to raise more capital to meet clearinghouse requirements, Robinhood halted trading in GameStop and other stocks. That sparked a backlash among customers, questions from lawmakers and a number of lawsuits.
The facts are important. @FSCDems are working to get to the bottom of what happened in late January with #GameStop stock and other stocks. Watch the hearing here: 📺 https://t.co/GtDsNGl8c2 pic.twitter.com/wz8OPHiyhT
— U.S. House Committee on Financial Services (@FSCDems) February 18, 2021
Robinhood, which offers free trading to 13 million investors, promised to “democratize finance.” But critics say its business model has an inherent conflict because Robinhood generates revenue by selling customers’ stock orders to larger trading firms, including market makers like Citadel Securities, whose founder Ken Griffin also testified in the hearing. (Griffin is the CEO of Citadel, a hedge fund, and also the founder of market maker Citadel Securities, which is a separate business and to which Robinhood and other firms route their trades.)
Tenev denied that his company was pressured by hedge funds to halt trading in GameStop. He added that the trading halt was due to his company’s need to raise more capital due to clearinghouse requirements. Robinhood raised $3.4 billion from investors over four days in order to meet increased capital requirements.
“We don’t answer to hedge funds,” Tenev told lawmakers. Asked if he was pressured by hedge funds as GameStop’s stock soared to halt trading, Tenev said, “Zero at all.”
Tenev also faced questions from Rep. Emmanuel Cleaver, Democrat of Missouri, about the death of Alex Kearns, a 20-year-old Robinhood customer who killed himself last year after mistakenly believing he’d lost nearly $750,000 in a risky trade.
“It was a tragedy, and we went into immediate action to make sure that we made not just the most accessible options-trading product for our customers, but the safest as well,” Tenev said.
After Kearns’ death, Robinhood clarified how the app displays a customer’s buying power, added phone-based support for people who trade using options and took other measures to improve the platform, Tenev said.
Sparks fly
Maloney noted that the Robinhood’s January 28 blog post blamed market volatility for its decision to halt trading in GameStop and other stocks, without mentioning the need to raise additional funds due to capital requirements. Tenev said the company “will be reviewing everything about this.”
“The $3.4 billion we raised goes a long way from pushing the firm from future volatility and other black swan events,” Tenev said.
Rep. Brad Sherman pressed Griffin on whether market makers like Citadel Securities that have a commercial relationship with Robinhood have an unfair advantage over average investors in how their trades are handled. As Griffin sought to respond, the California Democrat repeatedly interrupted, accusing him of trying to evade the question.
“Don’t tell me there are other factors involved and take us down another road,” a visibly annoyed Sherman said. “I’m asking you a clear question … Who gets the better deal — one [trade] that comes from a broker who is being paid for order flow, and one not? Can you testify that, on balance, there’s no difference, assuming the same size of the order?”
Sherman then cut Griffin off before he had a chance to fully address the question, saying: “You are doing a great job of wasting my time. If you’re going to filibuster, you should run for the Senate.”
Rep. Rashida Tlaib, a Michigan Democrat and outspoken critic of Wall Street, said lawmakers consider a small tax on securities trading. Advocates of a so-called financial transactions tax say it would dampen reckless speculation while raising billions of dollars in government revenue.
“We firmly believe that a transaction tax will injure Americans hoping to save for their retirement,” Griffin said.
“Political theater”?
Lawmakers also targeted the hearing itself, with Rep. Bill Huizenga, a Republican from Michigan, decrying it as “political theater.”
But some lawmakers pushed back against that characterization, including Waters and Rep. Juan Vargas of California, a Democrat.
The character of Robin Hood, a legend from folklore, “was supposed to steal from the rich and give to the poor, and here you almost have the opposite, where you steal from the small retail investor and give it to the large institutional investor,” Vargas said, adding that he believes this explained the interest in the the GameStop saga.
Payment for order flow
Lawmakers delved into the issue of “payment for order flow,” or when Robinhood steers its customers’ stock orders to larger trading firms like Citadel Securities that execute the transaction. In turn, Citadel Securities and other big firms pay Robinhood for sending the trades to them. Both Robinhood’s Tenev and Griffin defended the practice, noting that it is legal and approved by the SEC.
But while it the practice is legal, it may be a practice that raises conflicts for Robinhood, given that it makes its money from large trading firms that might have different objectives than small retail investors. Robinhood’s Tenev said the company discloses the practice “in multiple places” to its customers.
Tenev and Griffin noted that the practice has allowed companies like Robinhood to offer commission-free trading to small investors. Tenev noted that payment for order flow provides his firm’s biggest source of revenue.
“We simply play by the rules,” Griffin said. “Payment for order flow has been approved by the SEC. It is customary practice. I do believe it’s been an important force for innovation in the industry.”
Reddit and social media
The role of Reddit and social media was questioned, given the role of the WallStreetBets message board in promoting GameStop and other high-flying stocks. Tenev said his firm doesn’t monitor social media, while Reddit CEO Huffman noted that his company doesn’t require people to disclose their identities.
“They can choose to reveal as much or as little as they like,” Huffman said.
That question of identity came to the forefront with investor Keith Gill, a Redditor who goes by the name of “Roaring Kitty” and also appeared at the hearing, after he was sued earlier this week for securities fraud. The lawsuit accused him of misrepresenting himself as an amateur investor when the lawsuit claims he is a licensed securities professional.
Gill, who is known for his cat-themed T-shirts and a bright red runner’s headband in widely followed videos, changed out his attire for a jacket and tie — although the headband could be seen hanging on poster of a kitten with the words “Hang in There.”
Gill, also known as “Roaring Kitty,” testified about his role as an investor in GameStop. Gill, who often wears shirts adorned with cats, testified with a poster of a kitten and the words “Hang in There” behind him.
Aimee Picchi
Gill portrayed himself as an individual investor who did his legwork on GameStop. He also promoted GameStop during the hearing, saying, “I do find it’s an attractive investment at this price point.”
GameStop shares, which peaked at $483 in late January, fell 11% on Thursday to close at $40.69. The retailer’s market value has fallen roughly $32 billion since the company’s shares soared last month.
Additional regulation?
In opening remarks, lawmakers on the committee said the hearing is an opportunity to learn more about the connection between Robinhood, hedge funds and small investors. Some Democrats suggested that additional regulation may be needed to protect small investors, while Rep. Patrick McHenry of North Carolina, a Republican, pushed back against the notion.
“If you are wealthy, you are good to go,” McHenry said. “And if you aren’t, you’re too dumb to be trusted with your own money.”
He added, “It is easier to buy a lottery ticket than invest in Google.”
But some Wall Street analysts are skeptical that any regulatory changes will emerge from the hearing.
“This will not be a substantive conversation or debate. Equity market structure is complex,” Jaret Seiberg of Cowen Washington Research Group, told investors in a report. “The vast majority of Congress have little understanding of the inner working of the market.”