US securities regulator pick Gary Gensler says behavioral tech in trading apps needs scrutiny

President Joe Biden’s choice to head the Securities and Exchange Commission told Congress on Tuesday that the agency should address how to protect investors who use online stock-trading platforms with flashy tech gimmicks that entice them to trade more.

Gary Gensler, who was a chair of the Commodity Futures Trading Commission during the Obama administration, testified by video for his confirmation hearing by the Senate Banking Committee. He was asked about the roiling stock-trading drama involving GameStop shares that has spurred clamor for tighter regulation of Wall Street. The trading frenzy in shares of the struggling video-game retailer lifted their price 1,600 percent in January, though they later fell back to earth after days of wild price swings.

“At the core it’s about protecting investors,” Gensler said. Among the issues to be examined, he said, is the use of “behavioral” technology in stock-trading apps.

“What does it mean when you have balloons and confetti-dropping behavioral prompts to get investors to do more transactions? We’re going to have to study that and think about it,” Gensler told the panel.

The GameStop episode prompted lawmakers to raise concern about the business model of Robinhood, the online trading platform that hosted a wave of trading in GameStop. Critics have accused Robinhood of trying to lure young people with little or no experience trading stocks by including features on its trading platform that resemble gaming apps — like showering users’ screens with virtual confetti when they make a trade. Lawmakers have asked whether Robinhood is doing enough to communicate the risks to its estimated 13 million users.

Vlad Tenev, CEO and co-founder of the Silicon Valley company, rejected the accusations of Robinhood’s “gamification” of trading at a recent hearing by a U.S. House committee.

Tenev said the company merely gives people what they want in a responsible way, and that it offers educational tools for its users to learn about investing. “We don’t consider that gamification,” he said. “We know that investing is serious.”

Robinhood offers commission-free trading, but critics say customers pay another, hidden price because Robinhood provides their data on buying and selling to Wall Street firms.

If confirmed to the SEC post, Gensler said, he would work to strengthen transparency and accountability in the markets. That will enable people “to invest with confidence and be protected from fraud and manipulation,” he said. “It means promoting efficiency and competition, so our markets operate with lower costs to companies and higher returns to investors. ... And above all, it means making sure our markets serve the needs of working families.”-AP