Congressman on Reddit's WallStreetBets triggering big market swings: 'Power to the people'

North Carolina Rep. Patrick McHenry is a powerful man in Congress as the Ranking Member of the House Financial Services Committee, but even he took a moment to reflect on the newfound power of Reddit’s WallStreetBets forum triggering massive stock moves.

When asked in a Yahoo Finance interview about what he made of savvy retail investors teaming up to take on some over extended hedge fund positions, his response was simple: “Power to the people.”

“That’s my key takeaway here. You’re not going to stop people from talking to one another, you’re not going to stop the use of technology,” he said. “The opening of finance is here to stay. We need to embrace it, we need to be more permissive of it, we need to open up our regulations and our laws to make it more equitable and available for everyone — small or large.”

While Monday’s rally in silver hitting the highest price since 2013 may or may not have been directly tied back to Reddit’s quickly growing WallStreetBets group of 8 million members, last week’s 500% surge in GameStop and 300% spike in AMC shares certainly was. One popular retail trader in the group, Keith Gill, had been pitching his investment thesis videos on GameStop to the group for months, targeting a massive short squeeze which was fueled in-part by members gobbling up share after share to balloon Gill’s $50,000 position to more than $11 million. Other members who bought in when shares were sitting at $4 apiece last year were still sitting pretty — even if they held through GameStop’s 30% descent back to Earth on Monday.

On top of applauding those smart enough in the Reddit group to profit in the surge, McHenry also said he took little issue with the increasingly questioned practice of brokers getting paid by market makers to route customer stock trades through them in a process called payment for order flow.

Robinhood, the trading platform that temporarily blocked customers from buying GameStop shares during last week’s volatility, pioneered the payment model that made it possible for the platform to offer commission-free trades to customers. Larger brokers like TD Ameritrade and E-Trade quickly followed suit by eliminating their trading fees. But some have raised issue with the possibility that it could conflict with the responsibility for brokers to pursue the best execution of their customers’ trades if they are also getting paid to route trades to a specific market maker.

“Payment for order flow is what enables those fees to be crashed to zero for average everyday investors and I think there is still net good from that system,” the ranking Republican said. “I don’t think as a governmental official I need to step into that business decision. I think average investors have that option to go different routes.”

Company filings show Robinhood made more than $91 million dollars in the first quarter through pay for order flow revenue. TD Ameritrade notched about $200 million over the same period.

Social investing brokerage Public.com announced on Monday that it would be shifting away from the pay for order flow model and instead route orders directly to exchanges. To offset lost revenue, the brokerage says it will introduce a trade “tipping” feature to allow users to chip in per order.

Zack Guzman is an anchor for Yahoo Finance Live as well as a senior writer covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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