SEC concerned about ‘gamification’ in financial markets

Wall Street’s top regulator is reportedly very concerned about digital engagement practices used by brokerage firms to encourage stock buying.

The comments by SEC chief enforcement officer Gurbir Grewal signal a crackdown on practices that critics call investment gamification, though he declined to discuss any investigation at a hearing on Tuesday.

A year ago, the SEC raised concerns that gambling-like features were encouraging excessive trading, putting investors at risk.

Under existing rules, when a firm offers investment advice or recommends securities, it is required to put the interests of clients first.

“Gamification is a huge concern,” Grewal told members of the House Financial Services Committee Subcommittee on Investor Protection, Entrepreneurship and Capital Markets.

“I get worried when gamification crosses the line of a recommendation,” he added, Bloomberg reports.

Grewal said that when companies use digital nudges to sway customers, the SEC could take action because they don’t follow rules requiring them to act in customers’ best interests.

The SEC announced last month that it would propose new rules this year as part of a broader effort to make the US$45 billion US stock market more transparent.

Fledgling brokerage platforms such as Robinhood have been a relatively new development in the gamification of the financial industry.

A troubling conflict of interest has been identified between financial gamification and order flow, which has caught the attention of the US SEC.

Gamification in financial markets has also come under scrutiny from the EU financial watchdog.