Daily Management Review

Wall Street watchdog warns against gamification of stock trading


The US Securities and Exchange Commission said that online brokers are turning trading in stocks into games to boost revenues by paying for the flow of orders to encourage retail investor activity. Wall Street's top regulator warned of the dangers of gamification of stock trading in a report on "GameStop mania".

Advantus Media, Inc. and QuoteInspector.com
Advantus Media, Inc. and QuoteInspector.com
The SEC said that online brokerages are gamifying stock trading into a game, thereby encouraging retail investor activity and boosting revenue from the controversial pay-for-order flow practice. The SEC came to this conclusion after examining the events of early 2021, known as the "traders' riot". At that time, a group of amateur traders on a Reddit forum began to "inflate" the share prices of companies such as GameStop (a video game retailer) and AMC (a movie theatre chain), CNBC reports.

The SEC on Monday, 18 October published a report on the conditions of the stock and options market structure at the beginning of 2021. It focuses on the trading in shares of video game retailer GameStop in January this year, and it was its securities that were the most prominent of the meme stocks that Reddit traders were betting on. 

"Making markets work for ordinary investors is the essence of the SEC's mission," he summed up the commission's work "to address the issues raised by January's events." The 44-page report details how the "trading frenzy" went down and points to a number of causes that caused it. Among those "red flags", CNBC notes, the SEC cited internal payments that brokerage firms receive (payment for order flow), the gamification of securities trading and the disclosure of short selling. The Wall Street regulator did not limit itself to one and only reason for January's events. 

The Commission did not make specific recommendations for a framework for possible changes in US equity trading practices. 

source: cnbc.com