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March 26, 2024

SEC’s Predictive Data Analytics Rule Will Help Eliminate Conflicts Of Interest

WASHINGTON, D.C.— Better Markets filed a supplemental comment letter Securities and Exchange Commission (SEC) regarding its proposed rule to require securities firms to eliminate certain conflicts of interest associated with their use of predictive data analytics.

Why It Matters: The use of artificial intelligence in the securities industry has allowed firms to exploit predictive data analytics, digital engagement practices, and gamification features to induce investors to trade excessively. Firms use data that they gather on investor behavior to deliver prompts, nudges, and cues that are designed to encourage investors to keep trading. The SEC’s rule proposal is designed to prevent firms from using technology in a way that benefits the firm but harms investors.

What We Said: These concerns are not theoretical. Just two months ago, Robinhood paid a $7.5 million fine to settle allegations by Massachusetts’ securities regulators that it used game-like features to lure inexperienced investors into harmful trading activity. The SEC’s rule would require firms to eliminate or neutralize the conflicts that arise from their use of sophisticated technology.

The Bottom Line: The SEC must reject the criticisms that existing rules address conflicts of interest, that it should require only the disclosure of conflicts of interest that the use of these technologies create, and that its rule proposal covers overly broad uses of technology.

You can read our full public comment letter here.

Securities
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