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Senator Warns SEC Chief Not to Crack Down on Trading Apps

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What You Need to Know

  • SEC Chairman Gensler wants feedback on advisors' and BDs’ use of technologies including apps with gaming features.
  • Trading apps, along with falling fees and zero commissions, have broadened access to markets, Sen. Pat Toomey says.
  • SEC's mission does not extend to protecting investors from themselves, Toomey says.

Sen. Pat Toomey, R-Pa., ranking minority member on the Senate Banking Committee, urged Securities and Exchange Commission Chairman Gary Gensler on Thursday to “proceed cautiously” and avoid imposing new regulations on digital trading apps that could restrict investor freedom.

“The federal securities laws do not authorize the SEC to act as a merit regulator and limit the choices of investors in the absence of fraudulent or manipulative conduct,” Toomey told Gensler in a letter. “Investors understand that there are consequences — whether they gain or lose — from their investment decisions. It is not the government’s role to tell retail investors what they can and cannot buy, including through indirect measures that restrict how brokers can interact with their customers on digital platforms.”

Toomey was responding to a request for comment issued by Gensler on Aug. 27 seeking information on broker-dealers and advisors’ digital engagement practices, including their use of apps with gaming features.

The SEC, according to Gensler, wants feedback on advisors’ and BDs’ use of new and emerging technologies and how the agency could better protect investors.

“While I appreciate the SEC’s review of digital trading technology, I urge the SEC to proceed cautiously and avoid the temptation to pursue paternalistic regulations that restrict investor freedom under the guise of investor protection,” Toomey wrote.

“Coupling the advent of user-friendly mobile apps with other recent innovations, such as commission-free trading, no minimum account balances, and low-fee mutual funds and exchange-traded funds, has empowered millions of Americans to share in the tremendous wealth gains generated by the stock market — an opportunity that used to be available only to wealthy persons and institutional investors,” Toomey said.

He went on to express concerns about suggestions in the SEC’s request “that ‘digital engagement platforms’ — an ill-defined and overly broad term (i.e., anything containing ‘elements or features designed to engage with retail investors on digital platforms’) — may harm retail investors by encouraging strategies that carry additional risk, such as frequent trading, options trading, trading on margin, or other kinds of trading in complex securities products.”

The SEC has an important responsibility to protect investors, Toomey continued, “but that mission does not extend to protecting investors from themselves. Certainly, if new digital trading platforms harbored predatory features meant to unfairly separate investors from their money, then the SEC should investigate. However, the SEC should proceed cautiously and remember that adults investing their own money should be free to decide how to do so.”