Biden’s pick for SEC flags trading app gimmicks for scrutiny
WASHINGTON >> President Joe Biden’s choice to head the Securities and Exchange Commission told Congress on Tuesday that the agency should address how to protect investors who use online stock-trading platforms with flashy tech gimmicks that entice them to trade more.
Gary Gensler, who was a chair of the Commodity Futures Trading Commission during the Obama administration, testified by video for his confirmation hearing by the Senate Banking Committee. He was asked about the roiling stock-trading drama involving GameStop shares that has spurred clamor for tighter regulation of Wall Street. The trading frenzy in shares of the struggling video-game retailer lifted their price 1,600% in January, though they later fell back to earth after days of wild price swings.
“At the core it’s about protecting investors,” Gensler said. Among the issues to be examined, he said, is the use of “behavioral” technology in stock-trading apps.
“What does it mean when you have behavioral prompts to get investors to do more transactions? We’re going to have to study that and think about it,” Gensler told the panel.
The GameStop episode prompted lawmakers to raise concern about the business model of Robinhood, the online trading platform that hosted a wave of trading in GameStop. Critics have accused Robinhood of trying to lure young people with little or no experience trading stocks by including features on its trading platform that resemble gaming apps — like showering users’ screens with virtual confetti when they make a trade. Lawmakers have asked whether Robinhood is doing enough to communicate the risks to its users.
Robinhood offers commission-free trading, but critics say customers pay a hidden price because Robinhood provides their data on buying and selling to Wall Street firms.