Episode 68: Wall Street On Capitol Hill And Roaring Kitty
This week the Wall Street system was in the spotlight on Capitol Hill, with Robinhood, Citadel, Melvin Capital, Reddit CEO, and Roaring Kitty called in to discuss short-sellers and of course GameStop.
The proceedings largely amounted to political theater, but what was also clear was that similar to the last several groups of tech executives in front of Congress, many of Wall Street’s processes and inner-workings on Wall Street remind someone of a mystery to Congress. It was an educational session with everyone at the table including the retail trader. The other takeaway was that Vlad Tenev CEO at Robinhood probably didn’t do much to help reassure either customers or investors of Robinhood’s ability to quickly regain customer trust after the recent turmoil within Robinhood.
Here are some of the terms that were used that are worth explaining further.
Clearinghouses DTCC -The Depository Trust and Clearing Corporation (DTCC) helps participants with clearing services of different asset classes. Clearing firms may earn profits in their intermediary role, such as security from a seller and cash from a buyer. Broker dealers use clearing services to settle trading and complete the transaction.
T+2 is a shorthand for trade date plus two days indicating when securities transactions must be settled.
Best execution is a significant investor protection requirement that essentially obligates a broker-dealer to exercise reasonable care to execute a customer's order in a way to obtain the most advantageous terms for the customer.
Payment for order flow is the compensation and benefit a brokerage firm receives for directing orders to different parties for trade execution. The brokerage firm receives a small payment, usually fractions of a penny per share, as compensation for directing the order to a particular market maker.
Quote from Adena Friedman: “The markets are extremely efficient Today, it’s tens of millions, if not hundreds of millions, of retail investors coming in and trading every day. We were struggling to get to 500 million shares a day back in 1971; now we’re at ten billion to 15 billion shares a day.”
Market Close
Dow 30 31,494.32 +0.98 (+0.00%)
S&P 500 3,906.71 -7.26 (-0.19%)
Nasdaq 13,874.46 +9.11 (+0.07%)
IPO & SPACs
More than a dozen venture capital firms have formed SPACs, including shops that otherwise focus on early stage investing. Some limited partners might be worried about strategy creep, particularly if they're unable to share in the economics, but so far they're staying supportive, Axios' Kia Kokalitcheva reports.
Karat Packaging, a Chino, Calif.-based maker of environmentally friendly single-use food packaging, filed for a $75 million IPO. It plans to list on the Nasdaq (KRT) and reports $15 million of net income on $225 million in revenue for the first nine months of 2020. http://axios.link/7nEF