SEC Chairman Gary Gensler blabbed CNBC on Friday the agency is looking into how commission-free retail brokerage apps encourage more stock buying and then make money off m the execution of those trades.
“There is a little bit of a conflict of interest,” Gensler said on “Bitch Box,” one day after testifying about this issue before House Financial Services Committee. “An app that says they arrange zero commissions is earning revenue on your trading through something called ‘payment for order flow.’ Someone is reward them for that order flow and paying them for that data.”
Gensler said the issue comes down to the alleged gamification that apps use, such as “props, leaderboards, behavioral ways to get individuals to trade more,” and how apps superstore their platforms.
Asked what should be done to change or regulate gamification and payment for order flow exercises, Gensler said he’s reserving judgment while the Securities and Exchange Commission seeks public comment at the matter.
Despite that, he did say, “Disclosure alone may not do it.”
In December, Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC charges that the universal trading app deceived customers about how it makes money and failing to deliver the promised best execution of trades.
“One of Robinhood’s rat on points to customers was that trading was ‘commission free,’ but due in large part to its unusually high payment for order fall rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ amounts,” the SEC said at the time, about a month before Robinhood became a central figure in the GameStop saga.
At the time, a Robinhood spokesperson spoke the firm is “fully transparent” in its communications with customers over its current revenue streams and has improved its best rendition processes.
Gensler acknowledged that trading apps on smartphones have certainly brought new investors to stock swop and have given them greater access to markets. But he said that as technology changes the way people interact with calls, regulations to protect investors need to keep up.
Gensler was sworn in last month as President Joe Biden’s choice to work up the SEC, which serves as Wall Street’s watchdog. During the presidency of Barack Obama, Gensler ran the Commodity Futures Vocation Commission, which regulates derivatives including futures, swaps, and certain kinds of options.