Robinhood, Other Online Trading Apps Draw SEC Attention
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Here's your money briefing for Tuesday, August 31st. I'm J.R. Whalen for The Wall Street Journal. Online trading apps like Robinhood have captured the spotlight by attracting millions of novice investors with features like zero commissions and game-like graphics and functions. And that has caught the attention of regulators.
One of the things that the SEC is concerned with is whether some of these practices like, you know, lists of top stocks or push notifications or, you know, bright colors and engaging phone apps are actually doing things that could meet the definition of, you know, a recommendation or advice to investors to do something.
So how could the SEC's review of trading apps change the way we buy and sell stocks online? We'll ask our reporter Paul Kiernan about that after the break.
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The SEC wants to know more about the new generation of online trading platforms, apps like Robinhood that feature flashy graphics as a way to engage its customers and whether more oversight is needed. Reporter Paul Kiernan is with us. He covers economics and financial regulation for the WSJ, and he's been reporting on this. He joins us now. Paul, thanks for being on the show.
Thanks, JR. Great to be here.
So Paul, the SEC is requesting public comments about online trading as it considers whether to push any rule changes through. So what is it about these trading platforms that caught the SEC's attention in the first place?
So this request for comment has a lot to do, I think, with the attention that trading apps, including Robinhood, got earlier this year with the so-called meme stock phenomenon that arose with GameStop and AMC and a few other securities.
What prompted the SEC to open a review of online trading apps like Robinhood?
And so the SEC is trying to understand what it coins as digital engagement practices. in the investment industry. And so it's got a long list of questions that anybody can weigh in on. And you can bet that brokers and industry participants and lobbying groups will be weighing heavily on this in the months ahead. The first question is, what types of digital engagement practices do firms use or are expected to use? And what are their intended purposes? So the SEC is trying to understand what's happening in the market. Probably a view toward thinking about potential rule changes or alterations or guidance that it can provide to make sure that technologically savvy trading platforms are behaving in a way that's consistent with the law.
Okay, so brokers and institutions may be quick to respond to the SEC, but it's the effect on everyday investors that regulators are focused on, right?
Yeah, right. One of the things that the SEC is concerned with is ensuring that it understands whatever conflicts of interest might be present and, you know, if necessary, is able to stamp down on those. You know, another thing that they're trying to get their head around is whether some of these practices like, you know, lists of top stocks or push notifications or, you know, bright colors and engaging phone apps are actually doing things that could meet the definition of, you know, a recommendation or advice to investors to do something.
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