Today, Representative Cindy Axne (IA-03) pressed U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler on the risks facing investors from gamified trading platforms and brokerage relationships that create conflicts of interest.
“I’ve been very focused throughout this process on how new digital platforms have gamified trading – and can be designed to influence behavior within those users,” Rep. Axne said. “Is that something that the SEC will look at in evaluating whether the current regulatory structure is doing enough to protect investors against gamification towards risky behavior?”
“What we found in our modern internet age is that service providers…figured out how to basically engage us in a more fun app and make the user experience more enjoyable,” said Chairman Gensler. “Bringing that to finance, that can be good because it’s easier to use the app – but it also can lead to high trading activity. And that high trading activity is' really important.”
Chairman Gensler testified today before Rep. Axne and her colleagues on the House Financial Services Committee as part of their ongoing hearings on recent market volatility related to Robinhood, Citadel Securities, and so-called meme stocks like GameStop.
At the hearing, Rep. Axne raised the potential issues posed by Robinhood’s use of ‘payment for order flow’ (PFOF) agreements with Citadel Securities and other market makers.
“We’ve looked a lot at the industries who have a business model where people aren’t actually the customer of the service they count on,” said Rep. Axne. “We don’t have enough transparency around the PFOF…is that something you would consider including in updating those rules?”
“If we’re not paying – if it’s a free commission – it's often that somebody else is getting data. In this case the data is the actual transaction flow. That data is very valuable,” said Chairman Gensler. “That internalizer who’s taking that order flow…they have a data advantage against all the other market makers.”
In February, Rep. Axne grilled Robinhood CEO Vlad Tenev and Citadel Securities CEO Kenneth Griffin about the relationship between the two companies, and highlighted the potential risks of gamified trading on their platform.
The full details of Robinhood’s PFOF agreements have not been provided to Congressional investigations — despite Mr. Tenev’s pledge to do so.
Rep. Axne and Bill Foster (IL-11) formally requested the details of those agreements from Robinhood in March.
In December, Robinhood settled with the SEC for $65 million over charges that it had placed its PFOF revenue over the interests of its users.
Today’s hearing also featured testimony from Michael Bodson, President and Chief Executive Officer of the Depository Trust & Clearing Corporation and Robert Cook, President and Chief Executive Officer of the Financial Industry Regulatory Authority, Inc.
Original source can be found here
