ESMA Wants Curbs on ‘Gamification’ of Trading, Payments-for-Order-Flow

Friday, 29/04/2022 | 10:51 GMT by Arnab Shome
  • The regulator wants to improve investor protection within its jurisdiction.
  • It also extended its support to curb the controversial PFOF model.
ESMA

The European Securities and Markets Authority (ESMA), which oversees the European securities markets, is seeking to further tighten the investor protection measures for traders and has already made certain recommendations to the European Commission.

Announced on Friday, the EU regulator wants to put a curb on aggressive marketing tactics of the brokerages. This is particularly after the so-called gamification of trading and wants to address issues related to misleading marketing campaigns on social media.

Further, it wants permission for itself and other National Competent Authorities (NCAs) to impose on firms the requirement to use risk warnings on specific financial instruments. Under the current rules, trading service providers only need to provide generic risk warnings on their platforms.

Aims to Improve Investor Protection

Most of the proposals made by the EU supervisor is aiming to make the investment decision easier for retail investors.

Additionally, ESMA recommends the necessity of machine readability of disclosure documents, addressing information overload with the layering of information, and the development of a standard EU format of information.

Additionally, the regulator extended its support for the restriction of payment-for-order-flow (PFoF) proposed by the EU legislative body.

“Increased retail participation in financial markets provides opportunities both for savers and for companies seeking financing, and we are encouraged to see that digital trends and new business models are contributing to making investing more accessible to the general public,” ESMA’s Chair, Verena Ross said in a statement.

“These developments do not, however, come without risk. Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved. We are, therefore, setting out a number of proposals to ensure that these developments do not compromise investor protection in the EU.”

But, the EU regulator is not the only one seeking strict restrictions against the gamification of trades and PFoF. While the US securities market regulator is scrutinizing the PFOF, the Aussie supervisor wants restrictions on this business model.

The European Securities and Markets Authority (ESMA), which oversees the European securities markets, is seeking to further tighten the investor protection measures for traders and has already made certain recommendations to the European Commission.

Announced on Friday, the EU regulator wants to put a curb on aggressive marketing tactics of the brokerages. This is particularly after the so-called gamification of trading and wants to address issues related to misleading marketing campaigns on social media.

Further, it wants permission for itself and other National Competent Authorities (NCAs) to impose on firms the requirement to use risk warnings on specific financial instruments. Under the current rules, trading service providers only need to provide generic risk warnings on their platforms.

Aims to Improve Investor Protection

Most of the proposals made by the EU supervisor is aiming to make the investment decision easier for retail investors.

Additionally, ESMA recommends the necessity of machine readability of disclosure documents, addressing information overload with the layering of information, and the development of a standard EU format of information.

Additionally, the regulator extended its support for the restriction of payment-for-order-flow (PFoF) proposed by the EU legislative body.

“Increased retail participation in financial markets provides opportunities both for savers and for companies seeking financing, and we are encouraged to see that digital trends and new business models are contributing to making investing more accessible to the general public,” ESMA’s Chair, Verena Ross said in a statement.

“These developments do not, however, come without risk. Gamification techniques in trading apps and personal recommendations on social media may cause retail investors to engage in trading behavior without understanding the risks involved. We are, therefore, setting out a number of proposals to ensure that these developments do not compromise investor protection in the EU.”

But, the EU regulator is not the only one seeking strict restrictions against the gamification of trades and PFoF. While the US securities market regulator is scrutinizing the PFOF, the Aussie supervisor wants restrictions on this business model.

About the Author: Arnab Shome
Arnab Shome
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About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6408 Articles
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