Securities trading is not a game, better investor protection is needed

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If we’ve learned anything from Robinhood’s IPO and valued at around $ 30 billion last week, it’s that trading apps are here to stay, and with them, a boom in. the gamification of the investment.

But trade is not a game – and, as lawmakers, we have an obligation to protect American investors.

To the public, Robinhood claims to be the great Democrat in finance. To lawmakers, Robinhood claims to be a tech company. In neither case do they claim to focus on maximizing investor value. Because they can’t. They use the same psychological stunts that Silicon Valley originally developed to make people addicted to Farmville and Candy Crush. The same tools that make you waste a few more hours improving your imaginary barn were harnessed by Robinhood, but now with real money in play. They create behavioral feedback loops that push users – many of whom aren’t even. not old enough to play in a casino – to transact at a higher volume and complexity than they otherwise would.

To be clear, gamification isn’t necessarily bad. My teenage daughters wasted too many hours playing Sim City, but they also learned a lot about the law and our constitution by playing iCivics. In theory, there’s no reason responsible gamification can’t teach financial literacy and encourage responsible investing. But in practice, an app that attracts inexperienced young investors into high-volume daily trades and complex options products does not prioritize the well-being of its users.

Unfortunately, we have proof. I started sounding the alarm bells about Robinhood and the trading apps when Alex Kearns, a 20 year old student from Naperville, Ill., Committed suicide after seeing another negative balance. of $ 700,000 in his account. In his suicide note, Kearns named Robinhood, asking why the company had allowed a novice trader to access that position. Robinhood had also not responded to Alex’s repeated requests and, at that point, he did not have a customer support phone number that Alex could call. I have led my colleagues in Congress to ask Robinhood directly to improve transparency and user safety, and to urge federal regulators at the SEC and FINRA to take action to protect investors.

More than a year after the Kearns family lost their son, Robinhood continues to operate as a virtual casino, gamified to harness human psychology – with designs to conduct frequent, short-lived, roulette-like transactions, ready to go. extract money quickly from inexperienced investors.

This problem is compounded by a business model that generates income not based on users’ wealth creation, but rather on the amount of money downstream market players earn on these transactions. When you play poker, look around the table and find the fish; if you can’t, you are the fish. Robinhood started a business designed to feed sharks fish.

That’s not to say there hasn’t been any progress: Robinhood recently removed their confetti feature in response to scrutiny, just as they made marginal improvements to customer support after shaming the CEO of Robinhood. by dialing their virtually non-existent helpline in February. But we are deluding ourselves if we think that this problem is now solved.

This is why I introduced the Trading is Not A Game Act, directing the Government Accountability Office (GAO) to conduct a study on the impacts of gamification, psychological nudges and other design techniques used by online platforms to influence investor behavior.

Specifically, the bill defines gamification and directs the GAO in coordination with other regulatory agencies, including FINRA, NASAA, the SEC, and the SEC Investor Advocate, to consider both positive and negative effects. of gamification, to examine whether certain game features constitute investment advice, and to provide conclusions and recommendations to Congress within 270 days.

It is not about accessing the markets, but about protecting investors and we are doing a disservice by assuming the former is the latter. As long as Robinhood and his ilk refuse to make the changes necessary to protect investors, it is incumbent on lawmakers to protect consumers and ensure that what happened to Alex Kearns never happens again.

Casten represents Illinois’ 6th district and is a member of the House Financial Services Committee.

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