The Securities and Exchange Commission is seeking public input on the digital interaction practices of online brokers and investment advisors, as it considers new rules that could set limits on gamification techniques that critics say encourage excessive use of investment applications.
“While new technologies can provide us with greater access and product choice, they also raise questions about whether investors are adequately protected when we trade and get financial advice,” SEC President Gary Gensler said Friday. . “In many cases, these functions can encourage investors to trade more often, invest in different products, or change their investment strategy.”
Online trading apps like Robinhood HOOD,
and Webull have exploded in popularity in recent years as they have attracted young investors with zero commission policies and flashy interfaces that some concerns are overly seductive, causing some users to spend more time on them than is optimal for their health. financial.
Robinhood was put in the public spotlight earlier this year after extreme volatility in so-called meme stocks like GameStop Inc. GME,
and AMC Entertainment Holdings Inc. AMC,
led the company and some of its competitors to temporarily prevent its customers from buying shares in these companies.
The public outcry for this move prompted Congress to investigate the incident while focusing on interfaces and application techniques to make them more attractive.
“Robinhood seems to have perfected the gamification of commerce, providing the user with the perception that investing through the app offers recreational games with little or no negative risk,” New York Democrat Rep. Nydia Velazquez said during a Financial Services Service. Committee hearing in March, which summarizes some of the concerns of his colleagues.
In a Gensler video message published on Friday afternoon on his Twitter account, the president compared some of these tactics with those used by online streaming platforms to encourage customers to spend more time with their product.
“Transmission apps discovered that I’m kind of a rom-com type. I’m more likely to spend more time in an app if they suggest a rom-like than if they recommend some other movie, “Gensler said.” If we watch a movie that a streaming app recommends and I don’t like, maybe we will lose a couple of hours in the evening. Follow the wrong instructions in a trading app, however, they can have a substantial effect on a saver’s financial position. “
Many of the zero commission trading platforms make money through a practice called pay-per-order flow, whereby market makers pay the online broker the privilege of executing their customer orders. Critics say this business model creates an incentive for companies to encourage their customers to do more and more business, which some research has shown leads to poor financial performance.
“Regulators need to decompress the subliminal messages built into the app that cause people to unconsciously and thoughtlessly do things they wouldn’t do if they had the space for deliberate deliberation,” said Dennis Kelleher, CEO of Better Markets, a nonprofit that argues for tighter oversight of the financial services industry, MarketWatch said earlier this year.
Robinhood CEO Vlad Tenev dismissed such allegations when he appeared before the House Financial Services Committee in February. “While we have facilitated the investment, we recognize that it is not a game,” he said. “While I don’t know any agreed definition of gamification, I know Robinhood designed its app to attract a new generation of investors who feel more comfortable trading with smartphones than talking to a broker.”
The SEC requests that both industry participants and retailers submit their comments over the next 30 days, as it considers the possibility of formulating rules in the area. In a statement, Gensler said he was “especially focused” on how the SEC can protect investors when digital engagement practices have a large “impact on platform revenue, data collection or investor behavior.” “.