The SEC’s proposed “predictive data analytics” (PDA) rule, emphasizing potential impediments to technological innovations within financial services is good policy.
However, firms like Robinhood want your cash and they want AI to do their job. Robinhood, a big player in making stock trading “accessible” with their app, was fined $70M in 2019 for defrauding users and downplaying their system performance, then again in 2021 for $57M. They make it possible for millions of people to easily lose money to enrich a few thousand people.
From the 2021 investigation:
“The sanctions represent the largest financial penalty ever ordered by Financial Industry Regulatory Authority (FINRA) and reflect the scope and seriousness of the violations. In determining the appropriate sanctions, FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.” — FINRA, 2021
Robinhood tried to ride the wave of meme stock madness, and succeeded somewhat, to be fair. But, their success is at the feet of the millions of losers in the stock speculation cyclone of madness. Robinhood has open disdain for their customers and the rules of financial transactions, and their objection to the SEC’s proposed PDA rule proves this perfectly.
Vladimir Tenev, the co-founder and CEO of Robinhood, posted on X/Twitter his impassioned plea that the big bad SEC won’t let him become even more wealthy by using unregulated AI in his stock trading app empire. {cry emoji}
The primary intent behind the SEC’s proposed rule is to safeguard investors from potential risks associated with the use of predictive data analytics and AI. While the rule might seem broad, its objective is to ensure a comprehensive protective framework. The requirement for manual reviews will serve as a quality assurance measure, ensuring that the technology deployed in financial services is robust, accurate, and reliable. This will instill greater trust and confidence among investors that AI is a viable tool when used in combination with expert human governance.
By regulating the use of advanced technologies, the SEC wants to mitigate systemic risks that might arise from unchecked technological approaches to trading. The US financial sector is a critical component of the global economy, and any systemic failure could have far-reaching consequences – this isn’t just about some day traders, it’s about the entire system being run by AI. The SEC’s proposed rule will lead to more educated investment decisions by slowing down the pace of transactions and requiring more thorough reviews. Robinhood’s investors will have better insights and understanding of their investment choices, and won’t simply be led along by AI, fast-forwarding to become one of the between 80% to 99% of day traders to fail at making money on their investments. ¹ ² ³
While the rule might pose short-term challenges to tech-driven platforms like Robinhood, it could also potentially foster long-term innovation. Companies might be incentivized to develop new, compliant technologies that not only enhance the user experience but also align with regulatory safeguards. It’s crucial to strike a balance between fostering innovation and ensuring consumer protection. A more nuanced regulatory framework might be beneficial, one that promotes the responsible use of technology while also providing clear guidelines to prevent misuse. Time will tell if we get there, but finance bruhs want no guardrails, as usual.
But, the dumbest of all of us has to weigh in and do his thing, as always. Elon Musk also thinks any attempt to regulate his unfettered rush to wealth is bad. Of course, he does – and then he wraps his shower thoughts in pseudo philosophy for the Blue Checks™.
In the changing times of financial innovation using AI, and regulation such as the proposed PDA, the path towards a balanced, fair, and robust market ecosystem is riddled with contentious debates and divergent interests. The SEC’s proactive stance, embodied in the proposed PDA rule, echoes a wider call for oversight in a changing fintech landscape.
Firms like Robinhood, driven by a lust for unchecked profit (which they characterize falsely as the democratization of finance), embody the push for what they think is financial freedom, but everyone else knows as a bait-and-switch: Give us your money and you might be rich, but really give us your money so we can use AI to help you lose even more if it, earning huge fees in the process. Robinhood reported ~11M users and an average revenue of $84 per user per quarter in Q2’23. Not bad work if you can get it.
