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- Both Citadel Securities and Robinhood are seeking changes to how stock trading works.
- Ken Griffin and Vlad Tenev both want settlement times to be cut to reduce risk.
- They say the current system added to the GameStop chaos at the end of January.
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Citadel Securities boss Ken Griffin and Robinhood chief Vlad Tenev will both call for a reduction in the time it takes to settle stock trades when they testify to Congress on Thursday over the GameStop saga.
Griffin, whose market-making firm was on the other side of millions of GameStop trades, wants the settlement time to be cut to one day. Tenev will repeat his calls for the system to be instantaneous.
Both executives will argue that the current two-day settlement period exposes buyers and sellers to unnecessary risk, according to testimony released before the hearing.
“As we have seen, longer settlement periods expose firms to more risk in the time between execution and settlement, requiring higher levels of capital,” Griffin will say. “Settlement cycles should be shortened from T+2 [days] to T+1 [day].”
Griffin and Tenev are among a handful of executives to be called to testify to the House Committee on Financial Services, including Reddit chief executive Steve Huffman, Melvin Capital hedge fund boss Gabe Plotkin, and Reddit day-trader Keith Gill, also known as Roaring Kitty.
The committee is investigating the GameStop affair, which saw amateur investors drive up the video-game retailer's stock by as much as 1,000%, hitting hedge funds who had been betting against the company.
A key focus will be the move by popular trading app Robinhood to temporarily limit buying of GameStop and other popular stocks such as cinema chain AMC. The decision caused great anger among day traders.
Tenev has argued - and will argue again to the House - that the wild market volatility put huge strain on the settlement system, which in turn caused Robinhood to limit trading.
At the time, some users of the Reddit forum Wall Street Bets accused Citadel of pressuring Robinhood to halt trading.
Griffin will deny this, saying: "We had no role in Robinhood's decision to limit trading in GameStop or any other of the 'meme' stocks."
"On Wednesday, January 27, we executed 7.4 billion shares on behalf of retail investors. To put this into perspective, on that day Citadel Securities executed more shares for retail investors than the average daily volume of the entire U.S. equities market in 2019."
Tenev will call for "real-time settlement" of trades. Under the current system, trades take two days to be completed after brokers pass them to clearing houses, the institutions that make sure trades go through.
The system caused tensions at the end of January, when clearing houses demanded more money or "collateral" from brokers to account for the higher risk that stocks like GameStop and AMC could plunge in value over the two-day period, leaving them in the lurch.
Tenev will say: "Real-time settlement would have allowed Robinhood Securities to better react to periods of increased volatility in the markets without restricting the purchasing of securities."