America’s Stock Regulators Probe Gamification in Trading Apps

Possibly anticipating some new regulations, America’s Securities and Exchange Commission is investigating “gamification and behavioral prompts used by online brokerages that encourage trading,” reports CNBC. And SEC chairman Gary Gensler has specifically requested public input on two questions:First, the SEC chair wants to know how the financial regulator should protect investors against a potential conflict of interest. Online brokerages generate profits when their customers trade more often. Robinhood Markets, for example, makes money in part by sending its customers’ orders to high-frequency traders in exchange for cash. That process is itself controversial and known on Wall Street as payment for order flow. But if game-like prompts or congratulatory messages from online brokerages cause customers to make more tradesand especially if more trades result in poorer portfolio performance at slightly worse pricesshould the SEC intervene’ Gensler’s second key question is a bit more cerebral. In essence, the SEC wants to answer: If brokerages’ game-like or predictive prompts assume optimal outcomes and impact how often customers trade, should the regulator consider those in-app prompts as formal investment recommendations or investment advice’ Or, as Barrons puts it, “Critics say that some stock-trading apps look more like online games or gambling services, and their graphic interfaces are coercing users into making bad decisions.” Meanwhile, MarketWatch (via Dow Jones Newswires) reports on another issue: “According to a new survey from consumer finance website MagnifyMoney, 32% of U.S. investors say they have made trades while drunk.”Gen Z members fell into the trap the most of any generation, with 59% confessing to drunk trading, while 9% of baby boomers admitted to trading under the influence.This can be combined with the rise in “emotionally charged” investing that traders say they would later regret. Per the survey, 66% of Americans admit to making impulsive investing decisions… Entering trade orders on mobile devices has assuredly made stock trading easier to complete while engaged in other tasks, including imbibing, but why does it seemingly impact younger investors more’ According to the Addiction Center, an informational group for people struggling with substance-use disorders and co-occurring behavioral and mental-health disorders, the gamification interface of trading apps like Robinhood could be a factor. A Robinhood spokesperson told MarketWatch their platform was designed “to remove historical barriers to investing and open financial markets to millions upon millions of people previously left behind. “We are proud to expand access to the financial system and enable everyday people to learn and invest responsibly.”Read more of this story at Slashdot.
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