The likes of Citadel Securities and Robinhood Markets were big names during the trading frenzy surrounding GameStop earlier this year. Following on from the frenzy, US regulator – the Securities and Exchange Commission (SEC) – is making plans to clean up the unprecedented trading methods. SEC Chairman Gary Gensler recently revealed his thoughts surrounding online brokerages that dominate the execution of equity orders for retail investors.
The Chairman stated that increasingly popular apps such as Robinhood’s strategically utilise game-like features in order to hook customers and keep them trading. This sort of strategy when it comes to investments runs the risk of eating into returns over a period of time. Gensler raised concerns that a flood of equity transactions are now being channelled through Citadel Securities, alongside other big names, which he believes to be a severe threat to “healthy competition.” Gensler emphasised that these sorts of issues are set to be a focal point when the regulator examines its rules.
We look forward to engaging with the SEC as they consider potential rules in these areas.
As a number of SEC regulations were approved over 10 years ago, predating the huge influence of social media, the impending change will come as a huge task for the regulators. It must find a way around tackling the power of smartphones and real-time trading, which have altered the stock market as we know it.
Gary Gensler stated before the House Financial Services Committee that:
Many of our regulations were largely written before these recent technologies and communication practices became prevalent. We need to evaluate our rules, and we may find that we need to freshen up our rule set.
Gensler has reportedly asked SEC employees to research public comment regarding ‘gamification’, with feedback likely to inform future policy adjustments. The agency will also tighten its grip on payment for order flow – a practice that the likes of Citadel Securities use to pay brokers for the ability to fulfil customer orders.
Referring to the matter, a Citadel Securities spokesman said:
We simply play by the rules of the road… If they choose to change the rules of the road — we need to drive on the left side versus the right side — that’s fine with us.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.