Gensler Offers Clues on SEC’s Looming Online Broker Crackdown
(Bloomberg) -- Gary Gensler is signaling that new rules for stock trading from the U.S. Securities and Exchange Commission will focus on risks he says are posed by the predictive technologies that now dominate trading.
“Artificial intelligence and predictive-data analytics are changing many aspects of our economy,” the SEC chairman said Tuesday at a Practicing Law Institute virtual conference. “These technologies present the opportunity to expand access and lead to better risk management. The predictive-data analytics also raise a number of important challenges: conflicts of interest, bias and systemic risk.”
Gensler raised concerns over artificial-intelligence tools that online brokers, trading platforms and robo advisers use to steer clients into trades. The agency is weighing whether to crack down on the video-game like prompts that, critics say, encourage excessive trading on app-based brokerages and new rules for equity-market trading practices, including payment-for-order flow.
Gensler said the tools raise questions, including whether:
- So-called digital-engagement practices used by apps and advisers solely benefit clients or also the revenue of the firms -- thereby posing a conflict of interest
- Investors need protections from nudges and prompts offered by platforms and apps regardless of whether they legally meet the definition of a recommendation under SEC rules
- Analytical tools “reinforce societal inequities”
- Historical data used in models mirror longstanding biases
- Broad adoption of certain types of artificial-intelligence tools could fuel a future financial crisis by increasing concentration
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