The SEC and lawmakers have had their eyes on the latest trends in market trading and are voicing their concerns in what they deem to be an area that needs to be regulated, especially when it comes to the trading on popular brokerage apps and trading cryptocurrencies, a market that has boomed in the past year.

Newly confirmed SEC Chairman Gary Gensler has raised the alarm on needed regulation of online brokerage apps that have made trading accessible to millions of Americans that would have otherwise not been involved in the markets on such a hands-on level. Concerns over this growing trend of individual or retail investors started budding earlier this year after social media chatter drove stock prices of waning companies like GameStop, Nokia, Blackberry, and other “nostalgic” equities.

The boom of online brokerage accounts and access to market trading has been driven in part by what Gensler described as a “gamifying” of trading. Gensler explains how many online brokerage accounts have created an appeal to trading through eye-catching features and video game-themed trading experiences. This appeal to individual investors who often fall in the younger generation pool poses the very real threat of inexperienced investors making risky and almost reckless trades that they may not fully understand the consequences of.

One of the most notable cases has been the death of 20-year-old Alex Kearns who took his own life after his Robinhood account, a popular online brokerage, incorrectly displayed his portfolio in the red to the tune of $730,000. Kearns, who had thought he had racked up millions in losses, committed suicide days after seeing the negative account. He wrote in a note before he died, “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” Kearns' Cousin, Bill Brewster, also shared his concern about the inexperienced investors’ ease of access to the markets. Brewster criticized the online brokerage saying, “This is investing, this isn’t a game. It’s people’s lives.”

Gensler explained this new access to trading and its appeal by saying, “Many of these features encourage investors to trade more.” Gensler adds, “Some academic studies suggest more active trading or even day trading results in lower returns for the average trader.”

The Influence of Market Makers

Gensler also took issue with the market control that some firms have. He points to Citadel Securities, the financial backing of Robinhood, and other brokerages including banks, hedge funds, and government agencies. This massive market maker is behind nearly 50% of all retail trades executed on U.S. Stocks and options. Gensler warns about this massive control, explaining, “History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration.” Gensler goes on to add, “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Social Media Influence on Trading

Another of the SEC's concerns is the growing popularity of cryptocurrency trading and the social media influences that play a role in driving values up or down. Gensler explains that the SEC will continue to monitor and “deepen our understanding, resources, and capabilities” when it comes to social media and its impact on trading.

When it comes to cryptocurrency, social media and popular influencers have helped drive and dump prices of little-understood coins. Most notably, the recent SNL appearance of Elon Musk helped boost up the value of the meme coin, Dogecoin. In the days leading up to Musk's appearance, the coin's value nearly tripled. Along with other popular influencers, social media groups like Reddit’s Wall Street Bets have helped boost the value of the coin throughout this year as it has risen over 12,000%, a valuation that seems as inflated as it is misunderstood.

Gensler also highlighted the danger in what he called “bad actors” playing a role in market manipulation for personal gain. The founder of McAfee is allegedly one such bad actor after reports earlier this year that the antivirus software founder was behind a social media crypto pump and dump scheme. Gensler said about these bad actors, “I’m not concerned about regular investors exercising their free speech online. I am more concerned about bad actors potentially taking advantage of influential platforms.”

The SEC has not made any clear indication on what regulations will be, but they highlight the different factors that will likely push for further investigation and possible regulation of these new variables that have had an influence on the markets.

The SEC has shared that a report on market events will be published this summer. Gensler adds, “While I cannot comment on ongoing examination and enforcement matters, SEC staff is vigorously reviewing these events for any violations.”