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Illustration: Eniola Odetunde/Axios

The Reddit trading frenzy is bringing two middlemen of the financial system to the forefront.

Why it matters: The mania has exposed the inner-workings of the financial system — allowing trading platforms like Robinhood to shift some of the gaze toward at least one of these usually arcane players.

Clearing houses — the intermediary between stock buyers and sellers — are in the headlines in a way they haven't been since the 2008 financial crisis.

  • Robinhood said higher collateral requirements from the DTCC, the clearing house that settles 99% of equity trades, forced it to restrict trading of Reddit-fueled names — a move that caused an uproar among users (and lawmakers).
  • The DTCC makes members like Robinhood put up cash so the clearing house is not on the hook for customers' transactions in the two days it takes for trades to settle. The goal: to prevent widespread chaos if one broker can't pay.
  • In times of extreme volatility when volume is soaring (see: last week), the amount of cash the DTCC requires brokers to put aside goes up.

What they're saying: Robinhood CEO Vlad Tenev said on Clubhouse Monday that he got a "nerve-wracking" 3:30 am call from the DTCC, asking the company to put up an eye-popping $3 billion in collateral, thanks to the volatility in Reddit-pushed stocks.

Market-makers — a middleman that pays brokerages to direct trades their way — were the subject of a widespread, misleading theory tying Robinhood with Citadel.

  • Citadel Securities, the market-maker, handles the bulk of Robinhood trades — not Citadel the hedge fund (which bailed out another short-seller), though both are owned by Ken Griffin.
  • There were allegations that hedge funds pressured Robinhood to limit trading, which Tenev has vehemently denied.

One notable pivot that's come as a result of the Reddit mania: Free stock-trading app Public.com said it will nix the market-maker middleman altogether, instead pushing trades directly to the stock exchanges.

  • It's moving to an optional "tipping" method to make up for the revenue lost from pushing trades to market-makers.

Driving the news: Robinhood raised a total of $3.4 billion from investors in recent days — capital that will help it meet onerous DTCC requirements. (And Reuters reports the company is considering raising another $1 billion in debt.)

What to watch: The House Financial Services committee will hold a hearing on Feb. 18. Tenev will testify, Politico scoops.

  • Rep. Maxine Waters, who chairs the committee, told MSNBC she wants to investigate whether the trading restrictions were the result of "collusion" between Robinhood and hedge funds.

Go deeper

WarnerMedia-Discovery merger faces questions over Latino programming

Rep. Joaquin Castro (D-Texas). Photo: Jacquelyn Martin/AP Photo/Bloomberg via Getty Images

Rep. Joaquin Castro (D-Texas) and Sen. Elizabeth Warren (D-Mass.) want the Justice Department to review closely a proposed merger of WarnerMedia and Discovery over concerns it could limit programming and opportunities for Latino creators.

Why it matters: Castro has been leading a campaign to pressure media companies to hire more diverse staff and produce more programming with people of color. Media mergers could make that more challenging.

Updated 1 hour ago - Politics & Policy

Omicron dashboard

Illustration: Shoshana Gordon/Axios

  1. Health: Americans shrug off Omicron, Axios-Ipsos poll finds — CDC director says number of U.S. Omicron cases "likely to rise."
  2. Vaccines: Omicron gives a shot to boosters — U.S. announces $400M for global COVID vaccine distribution — Vaccine mandates lose steam in the U.S. while Europe doubles down.
  3. States: Gov. Hochul will order some NY hospitals to halt elective surgeries — Nevada to impose insurance surcharge on unvaccinated state workers.
  4. World: EU drug regulator backs mixing COVID vaccines — Poor global equity likely in COVID pill access — CDC raises travel advisories for France, Portugal to highest level amid COVID surge.
  5. Variant tracker: Where different strains are spreading.

Mark Meadows will stop cooperating with Jan. 6 panel, attorney says

Photo: Chris Kleponis/Polaris/Bloomberg via Getty Images

Former White House chief of staff Mark Meadows will no longer cooperate with the House select committee investigating the Jan. 6 Capitol insurrection, his attorney told Fox News Tuesday.

Why it matters: Meadows, who failed to appear before the panel last month, is believed to have insight into former President Trump's role in efforts to stop the certification of President Biden's election win.