Robinhood says SEC faces high legal burden to change broker-app rules
As the agency looks at whether game-like features used by the online trading platform lead to excessive trading by retail investors, Robinhood says additional regulation could be rejected by U.S. courts.
Robinhood Markets Inc. fired a warning shot to regulators, saying efforts to impose new rules on online brokerages’ engagement with their customers would face a high legal burden and could ultimately be rejected by U.S. courts.
In a 27-page letter to the Securities and Exchange Commission, Robinhood laid out a number of arguments for why it will be hard to justify enhanced oversight. The SEC is examining whether notifications, lists of popular stocks and a variety of game-like features used by Robinhood and other brokerage apps are encouraging excessive trading that puts retail investors at risk.
“The bottom line is that additional regulation in this area will undoubtedly raise significant legal issues,” Robinhood Financial President David Dusseault wrote in the letter, which was posted on the SEC’s website Tuesday.
Robinhood said its mobile app isn’t a game, noting that in contrast to some of its competitors, it doesn’t use tactics such as leader boards or trading competitions to keep users coming back. Moreover, the brokerage argued, attempts to hem in digital engagement with brokerage apps could violate free-speech protections.
In August, the SEC asked the industry to comment on a list of questions about the tactics app-based brokerages use to keep their customers engaged and that have been criticized as “gamification” of investing. Robinhood, with more than 22 million funded accounts at the end of June, is among the largest U.S. brokerages and has been in the spotlight as retail trading took off during the pandemic.
[More: Regulators: Trading app nudges could be investment advice, trigger Reg BI]
The brokerage also argued that it doesn’t use technology to push specific investments or tailor trade ideas for particular customers. The firm had previously come under fire for offering lists of the top-traded stocks on its mobile app. Such lists, the company said, are meant to provide users free information.
Robinhood cited the First Amendment in arguing against further rules, saying it protects a brokerage’s ability to inform and communicate with customers through words as well as graphics.
“Just as a painting or a symphony is entitled to no less First Amendment protection than a novel or a newspaper article, digital platforms do not lose First Amendment protection when they express ideas through ‘animation and graphics’ or ‘visual cues,’” the company said in its letter to the SEC.
For reprint and licensing requests for this article, click here
SEC set to allow Bitcoin futures ETFs
Unlike Bitcoin ETF applications that the regulator has previously blocked, the proposals by ProShares and Invesco are based on futures contracts, and the SEC isn't likely to block them from starting to trade next week.
JPMorgan bankers notch record quarter for M&A
Fees from advising on deals almost tripled in the third quarter, crushing analysts’ estimates and helping to push the bank’s net income to $11.7 billion.
Inflation expectations among consumers hit new highs
A Fed survey shows U.S. household expectations for inflation one year ahead rose to 5.3% in September from 5.2% in August, while median expected inflation three years ahead rose to 4.2% from 4%.
Schwab names Rick Wurster president
Wurster has run the company's asset management unit, which oversees Schwab funds and ETFs. Previously, he worked at Wellington Management.
Goldman cuts US growth forecasts into 2022
The two main challenges to growth in the medium-term were a slowing of fiscal support and the need for spending on services. The declines were mostly offset by upgrades to projections for the following two years.
