May 7, 2021
Authored by: Vicki Westerhaus and Katherine Ashton
SEC Chair Gary Gensler testified yesterday before the House Committee on Financial Services about the SEC’s efforts to assess and address the market volatility that occurred in GameStop and other “meme stocks” resulting in significant price volatility and trading volume spikes earlier this year.
Gensler said the SEC is working to determine, in the face of changes in technology and finance, how to continue to achieve core public policy goals while ensuring that the markets work for everyday investors. Gensler cited seven factors that were at play during the volatile trading periods:
- Gamification and User Experience: Mobile apps expanded access to capital markets, making it easy for investors to sign up, start trading, get wealth management advice, and learn about investing. The apps use a host of familiar online features, such as gamification (points, rewards, leaderboards, bonuses, and competitions), behavioral prompts and differential marketing, to increase customer engagement.
- Gensler said the staff is preparing a request for public input to consider these issues and determine how to ensure investors using apps with these types of features are appropriately protected and how SEC rules, including Regulation Best Interest, apply in these situations. Gensler noted that many SEC regulations were written well before today’s technologies and communication practices existed and need to be re-evaluated to protect the futures, retirements and education of the investing public.
- Payment for Order Flow: Gensler noted that in the last few years, most retail broker-dealers stopped charging fees for trades