SEC Right to Scrutinize Gamification of Trading

WASHINGTON – The American Securities Association (ASA) today submitted a comment letter to the Securities and Exchange Commission (SEC) raising investor protection and safety and soundness concerns regarding the gamification of digital trading applications targeted at retail investors.

“SEC Chair Gensler is right to scrutinize the gamification of trading, payment for order flow, and the negative impact these practices can have on America’s retail investors,” said ASA CEO Chris Iacovella. “We support the request for further information to help the SEC determine whether regulatory action is warranted.”

In the letter, ASA outlined investor protection concerns associated with customer protection and the gamification trading, interactive digital applications, customer protection rules and the interactive app, and copy trading and cryptocurrencies. “It is difficult to understand how a digital application that uses predictive analytics designed to influence a customer’s behavior to enter into a trade does not trigger the customer protection rules, including Reg BI,” Iacovella wrote.

“There is growing awareness that the addictions to scrolling and time spent on social media and digital applications can be harmful to the mental health and well-being of users, particularly young people,” Iacovella wrote in the letter. “Creating a trading environment that caters to this addiction while simultaneously encouraging users to risk their savings in the stock market is a recipe for trouble.”

To better support safety and soundness, ASA called for broker-dealers to be properly capitalized and for the SEC examine and address longstanding issues related to short sales which became apparent in early 2021. “When a firm lacks the capital necessary to meet its financial obligations to the clearinghouse that settles its trades, its management may be forced to take drastic measures such as preventing its customers from continuing to trade and raising emergency capital,” Iacovella wrote. “While such actions may outrage the firm’s customers, no single firm can be allowed to threaten the viability of the clearinghouse, its members or the financial system at large.”

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ASA’s regional financial services companies work in communities across the country to create jobs, grow the economy, and increase prosperity for all Americans. The ASA exclusively represents the capital market and private client interests of its members and seeks to promote free market principles making it easier to access financial advice and capital. ASA members help Americans save for retirement, provide Main Street businesses with capital to grow, and advise hardworking Americans how to create and preserve wealth. For the latest updates follow @AmerSecurities and learn more at http://americansecurities.org/.