Will Analysis-Games Stop? The Reuters are investigating the crackdown on commercial applications by Reuters

Author: Katanga Johnson

WASHINGTON (Reuters) – One year after the Meme Stock Rally lowered hedging funds and ruined Wall Street, U.S. regulators are looking at ways to deal with the psychological recommendations often used by U.S. regulators to promote Robinhood (NASDAQ 🙂 Inc. and other non-commissioned brokers. stock trading in smartphone apps.

The Securities and Exchange Commission (SEC) began examining non-commissioned brokers like Robinhood, Webull Financial LLC and SoFi Inc last year after retail investors raised GameStop (NYSE 🙂 and other “meme stocks” in January 2021.

The furious meeting raised GameStop’s shares by more than 1,500% at one point and created a “brief stupor” that burned hedge funds that bet against the shares of the video game retailer. Shares of AMC Entertainment (NYSE 🙂 and other film companies also rose.

At the height of their madness, several brokers restricted the trading of meme shares, angering investors. Robinho’s CEO Vlad Tenev and other executives were taken away https://www.reuters.com/article/us-retail-trading-usa-congress/long-tense-with-cat-photo-for-relief-how-the -gamestop -hearing-unfolded-idUSKBN2AI1C4 to testify before the US Congress.

The SEC has found that many brokers, including roboadvisors, are increasingly using artificial intelligence, video game-like features, and other behavioral-driven analytics to promote stock trading or sell certain products.

Trading competitions, points and prizes are some of these techniques. There are also vivid sounds and bright colors, notifications, social media tools, and a prepared list of trading and investment ideas, among other practices.

“The SEC is very concerned about many young investors, many of whom are too young to legally drink alcohol, because they are intoxicated with digital engagement in the marketplace,” said Howard Fischer, a partner in law firm Moses & Singer, adding to the industry. it is likely to be pushed back hard.

“There’s probably a war going on.”

Commissionless brokers say they are democratizing investment, making trading easy and fun for anyone. In a blog post on Tuesday afternoon, Robinhood said it has added resources to help clients learn the basics of investing.

Critics say that commission-free brokers are trying to maximize retail trading volumes because they are earning a share of profits to target orders to wholesale market makers. This can be a conflict of interest; research shows that retail investors generally lose money when they remove their wallet.

“Behaviors are being bombarded daily by Americans … brokerage applications and roboadvisor are doing the same,” SEC President Gary Gensler told CNBC last week. “Their motivation is to make more money.”

On Wednesday, Gensler said in a statement that he expected recommendations on employee digital engagement practices without giving details.

In an August consultation https://www.reuters.com/legal/transactional/us-markets-regulator-wants-public-feedback-firms-digital-engagement-practices-2021-08-27, the SEC suggested a digital recommendation . sometimes it may be an investment recommendation that is subject to the Supreme Interest of the Regulation. This 2019 rule requires the broker-dealer to make a recommendation to act in the best interests of the retail client and to identify conflicts of interest.

If the SEC were to go down that path, companies that use digital engagement tools would likely have to make extensive new disclosures. This burden of burden would complicate the business and make them more vulnerable to litigation.

“It could be a surprise game change,” Fischer said.

THE NOVEL TERRITORY?

At the time of the meme stock rally, more than 100 million retail users / accounts were open in six of the world’s leading online brokers, Reuters reported last year.

A survey by the Financial Regulatory Authority (FINRA), which also intensified the study of similar trading features in gambling, showed that 66% of investors who opened an investment account in 2020 were new investors.

Industry groups, including the Securities and Finance Markets Association (SIFMA), have said that digital engagement practices can be beneficial to investors, for example, when used to save more money or focus on long-term investment.

In a brief response to the SEC’s consultation, SIFMA also said it believes that in most interactions, the use of digital engagement practices would not be a recommendation, based on “well-established” guidelines.

Some experts who support the regulation acknowledge that the SEC is entering new territories, noting that there is limited research on how digital engagement practices directly affect investor decision-making.

Financial institutions have the best data on the subject, but they share little incentive to share, said Edwin Huk, a New York University researcher and former SEC official.

“A key question is whether the design of the user interface can be considered investment advice and the extent to which interface design affects investment decisions. This is a very difficult empirical and legal question facing the SEC,” Huk said.

Research on the gaming and gaming industries suggests that noise, bright colors, and other sensory details that aim to replicate real-world stimulation “target users to action,” said Colorado State University professor James Fielder.

“Well … if you put these experiences into trading as if it were a game, but real money is at stake, then that’s a great thing.”

Some experts are concerned that digital engagement practices are growing so sophisticated that they can generally increase trade without overt individual notice. This means that the focus of the Best Interest Regulation has not been enough, according to SEC internal investor Rick Fleming.

“If Reg BI proves to be inadequate to protect investors, I think the Commission should return to the drawing board so that the critical protections of its investors do not rise further and whether the broker-dealer has made a specific recommendation.” he added.