Barbara Roper, director of investor defense at the Consumer Federation of America, said it would be more difficult for the SEC to behave this way.
“We are better at regulating commercial market participants than deciding what to do when investors carry this,” Mr. Roper said.
The SEC is likely to focus on Robinhood and other technolat platforms that have enabled investors to invest, including allowing trading options – a financial product that seems to have boosted some of the big prices of GameStop Potop. Options are essentially contracts that give the buyer the right to buy or sell stock at a given price at some point in the future. That type of trade can be both risky and disruptive, experts said.
“Option trading rules are pending review,” Ms. Roper said. “There are supposed to be guards in a space that allows more professional traders to trade limited options or at least make sure investors understand the risks.”
Instead, Robinhood and other platforms allow any investor to buy options at the push of a button.
“The SEC will need a hypothesis. The problem with mine is that leverage is largely a problem of leverage and that leverage comes from trading options rather than individual shares, ”said James Cox, a professor of securities at Duke University School of Law. “We may really need to consider whether there needs to be a limit to how many options a person can have and be able to execute.”
[Read more about how options trading might be fueling a stock market bubble.]
In addition to the risks of options trading, the SEC may also focus on whether there was any incentive and marketing misleading that would lead investors to new financial technology platforms. Dennis Callaher, president of Better Markets, said many companies, including Robinhood, argued for “commission-free” investments, which many investors would have misunderstood.
“The reason most of these people are in the business sector is because they make the misleading claim that trade is ‘free’, and now many of them feel that free money is falling all over the place,” Kelleher said. Or indirectly claiming that trade is free is misleading for any false and fair investor. “
