New financial apps ‘raise questions as to whether we as investors are appropriately protected’, said SEC chair Gary Gensler © Bloomberg

The US stock market regulator has asked the public to weigh in on the “gamification” of share trading, in response to concerns that some online apps are prodding investors to take risks they do not fully understand. 

The US Securities and Exchange Commission on Friday issued a request for comment on the digital practices used by online platforms such as Robinhood to keep customers trading. 

Gary Gensler, SEC chair, suggested some of these practices could count as stock market recommendations in themselves, leading to much stricter regulation for trading platforms. 

“In the last few years, we’ve seen new brokerage apps, wealth management apps that give us investing advice, along with robo-advising,” he said in a video posted on his Twitter feed.

“While these new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice.”

In a separate statement, his agency asked the public to comment on the extent to which digital prompts that encourage people to trade count as making a recommendation or providing investment advice.

“In many cases, these features may encourage investors to trade more often, invest in different products or change their investment strategy,” Gensler said, warning about a potential conflict of interest between the aims of platforms and investors. 

The request for comment is a possible first step towards much stricter controls of digital trading platforms, which have come under scrutiny thanks to frenzied transactions in certain companies such as the games retailer GameStop. 

The company’s shares have soared more than 1,000 per cent this year as traders using the online chatroom Reddit have encouraged each other to buy them, triggering serious losses in some hedge funds that had sold the shares short or bet on a decline.

But the wild swings in the shares of GameStop and a handful of others have triggered concern about whether some online platforms are encouraging people to trade without fully explaining the risks. 

Robinhood has repeatedly come under fire from regulators for gamification and its user experience, which has included emojis and images of sprinkled confetti when investors execute trades.

The company said it looked forward to communicating with the SEC on brokers’ digital engagement practices.

“Robinhood has made it possible for millions of Americans of all backgrounds and socio-economic classes to invest for the first time, with the opportunity to build wealth over the long-term through a simple, accessible, and welcoming platform,” it said.

Gensler said he was interested in practices such as marketing differently to different users based on their profile and encouraging people to keep trading through certain prompts and notifications. 

He has previously said he wants to review so-called payment for order flow, where companies can pay trading platforms for the right to complete their trades. Such practices have proven lucrative for online platforms in recent years. 

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