Senator Pat Toomey told CNBC on Tuesday that he welcomed stock trading apps that make investing more accessible and dismissed complaints from some that brokers like Robinhood had “gamified the stock market”.
The Pennsylvania Republican commented on Squawk Box ahead of Tuesday morning’s Senate Banking Committee hearing on retail investors and the GameStop trading frenzy that began in January. Toomey is the senior member of the committee.
“There’s a lot of criticism of gamification … the idea that you’re making the investing experience enjoyable and easy is kind of a problem for some people. Not me,” Toomey told CNBC.
Robinhood, a brokerage app that pioneered zero-commission trading and popular with young investors, became one well before the start of the Reddit-powered GameStop saga that caught Wall Street’s attention earlier this year subjected to thorough examination. During the coronavirus pandemic, brokers also saw millions of new users as people back home started buying and selling stocks.
“The worst part of what they do is clearly the way they play the idea of investing,” William Galvin, secretary of the Commonwealth of Massachusetts, told CNBC in December after the securities commission filed a complaint against Robinhood .
Robinhood has consistently rejected criticism of its investment approach and the user experience on its app. In a testimony presented to the House Financial Services Committee in February for an earlier GameStop hearing, Robinlad co-founder and CEO Vlad Tenev said, “Although we’ve made it easier to invest, we realize it’s not a game.”
“I am confident that the user-friendly interface will enable customers to understand, control and manage their finances in a responsible manner,” Tenev said in the statement.
Toomey said he appreciated how stock trading platforms like Robinhood created a new class of investors.
“In my opinion, the democratization of these markets has been fantastic. No commissions, extremely tight supply [spreads] means retail investors can buy stocks in ways they have never been able to do before. For example, buying a fraction of a share, “Toomey said.
An increased participation of the Americans in the stock exchange is “really, very, very good,” said Toomey.
The retailer’s rise has been particularly in focus since January, when GameStop’s shares skyrocketed after investors stormed into the highly anti-betting stocks on online forums, causing a brief squeeze.
Short sellers borrow shares of a stock and then sell it back on the market with the aim of buying it back later at a lower price. Then they return the borrowed shares and benefit from the difference. When the opposite happens, as it did with GameStop, shorts try to minimize their losses by buying back the stock at higher prices.
That activity, combined with aggressive buying of GameStop stock and call options from a horde of other investors, helped the video game retailer’s stock from below $ 20 in early January to an intraday high of $ 483 on Jan. January rose.
GameStop shares later fell below $ 40 by mid-February, although the stock recently rallied again and returned to above $ 200 apiece during Tuesday’s session.
Among those who bought and sold GameStop stock in late January was one of Toomey’s children. According to Senate financial statements, one of his children bought GameStop shares for $ 1,001 to $ 15,000 on Jan. 27 and sold the position in full on Jan. 28.
In a statement to Insider last month covering the transactions, Toomey said he was unaware that any of his sons were trading with GameStop at the time. Insider identified the kid as college-aged Patrick Toomey III.
“If my son had asked me for advice, I would have told him the same thing I have said in numerous print and television interviews: It’s a classic bubble that will end badly for most participants,” Toomey said in a statement to Insider.