April 20, 2021

Latest news and Update

Latest news and Update

‘Gamification’ of stock trading not a problem

Sen. Pat Toomey told CNBC on Tuesday he welcomes stock-trading apps that make investing seem more approachable, rejecting complaints by some that brokerages like Robinhood have led to the so-called “gamification” of the equity market.

The Pennsylvania Republican made the comments on “Squawk Box” ahead of Tuesday morning’s Senate Banking Committee’s hearing on retail investors and the GameStop trading frenzy that began in January. Toomey is the ranking member on the committee.

“There’s a lot of criticism about gamification. … The idea that you make the experience of investment enjoyable and easy is somehow a problem for some folks. Not for me,” Toomey told CNBC.

Robinhood, a brokerage app that pioneered zero-commission trading and popular among young investors, had its operations scrutinized even before the Reddit-fueled GameStop saga captured Wall Street’s attention earlier this year. The brokerage also saw millions of new users during the coronavirus pandemic as people started to buy and sell stocks while at home.

“The worst aspect of what they do clearly is the way they are gamifying the idea of investing,” Massachusetts Secretary of the Commonwealth William Galvin told CNBC in December after the securities regulator filed a complaint against Robinhood.

Robinhood has consistently rejected criticisms around its approach to investing and the user experience on its app. In testimony submitted to the House Financial Services Committee in February for an earlier GameStop hearing, Robinhood co-founder and CEO Vlad Tenev said, “Even though we have made investing easier, we recognize it is not a game.”

“I am confident that the easy-to-use interface enables customers to understand, control, and direct their finances in a responsible way,” Tenev also said in the testimony.

Toomey said he appreciated how stock-trading platforms like Robinhood have created a new class of investors.

“My view is the democratization of these markets has been fantastic. Zero commissions, extremely narrow bid-offer [spreads] means retail investors can buy into stocks in a way they never could before. Being able to buy a fraction of a share, for instance,” Toomey said.

Increased participation from Americans in the stock market, Toomey said, is “really very, very good.”

The rise of the retail trader has been in particular focus since January, when shares of GameStop went on a meteoric rise after investors in online forums rushed into the heavily bet-against stock and caused a short squeeze. 

Short sellers borrow shares of a stock and then sell them back into the market, with the goal of purchasing them back later at a lower price. Then, they return the borrowed shares and profit off the difference. When the opposite happens, like with GameStop, shorts try minimizing their losses by buying the stock back at higher prices. 

That activity, combined with aggressive buying of GameStop shares and call options from a horde of other investors, helped push the video-game retailer’s stock from under $20 in early January to an intraday high of $483 on Jan. 28. 

GameStop shares later plunged to under $40 by mid-February, although the stock has been on a rally again recently and was back over $200 apiece during Tuesday’s session.

Among those buying and selling shares of GameStop in late January was one of Toomey’s children. According to Senate financial disclosures, one of his kids bought between $1,001 and $15,000 worth of GameStop shares on Jan. 27 and sold out of the position completely on Jan. 28.

In a statement to Insider, which reported on the transactions last month, Toomey said he was not aware that one of his sons was trading in GameStop at the time. Insider identified the child as college-aged Patrick Toomey III.

“Had my son asked for my advice about these trades, I would have told him the same thing I said in numerous print and television interviews: that it’s a classic bubble that will end badly for most participants,” Toomey said in a statement to Insider.