[House Report 117-231]
[From the U.S. Government Publishing Office]



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117th Congress    }                                   {         Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                   {        117-231

======================================================================



 
                        TRADING ISN'T A GAME ACT

                                _______
                                

January 20, 2022.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Ms. Waters, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4685]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4685) to require the Government Accountability 
Office to carry out a study on the impact of the gamification, 
psychological nudges, and other design techniques used by 
online trading platforms, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     3
Section-by-Section Analysis of the Legislation...................     5
Hearings.........................................................     5
Committee Consideration..........................................     5
Committee Votes..................................................     5
Committee Oversight Findings.....................................     8
Statement of Performance Goals and Objectives....................     8
New Budget Authority and C.B.O. Cost Estimate....................     8
Committee Cost Estimate..........................................     9
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Applicability to Legislative Branch..............................    10
Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
  Benefits.......................................................    10
Duplicative Federal Programs.....................................    10
Minority Views...................................................    11

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SEC. 1. SHORT TITLE.

  This Act may be cited as the ``Trading Isn't a Game Act''.

SECTION 2. GAO STUDY ON THE GAMIFICATION OF INVESTING.

  (a) Study.--The Comptroller General of the United States shall carry 
out a study on the impact of the gamification, psychological nudges, 
and other design techniques of online trading platforms, including the 
following:
          (1) How, and to what extent gamification, psychological 
        nudges, and other design techniques are being used by online 
        platforms in ways that are detrimental to investors.
          (2) How, and to what extent gamification, psychological 
        nudges, and other design techniques are being used by online 
        platforms in ways that empower, inform, and educate investors.
          (3) The various ways brokers use gamification, psychological 
        nudges, and other design techniques in marketing strategies 
        that attempt to attract retail customers.
          (4) The various ways investment advisers or ``robo-advisers'' 
        use gamification, psychological nudges, and other design 
        techniques in marketing strategies that target or include 
        retail customers.
          (5) The various ways in which brokers, investment advisers, 
        or ``robo-advisers'' incorporate ``game-like'' features and 
        designs in their online trading applications used by retail 
        customers.
          (6) Whether certain platform use of gamification, 
        psychological nudges, and other design techniques, including 
        ``game-like'' features, may constitute investment advice or 
        recommendations under Federal securities laws and regulations, 
        including Regulation Best Interest (17 C.F.R. 240.15l-1).
          (7) A comparison between the investment activity, habits, and 
        risk tolerance, including a comparison between the stated 
        preference of retail investors and their actual trading 
        activity, of--
                  (A) retail customers of firms that use gamification, 
                psychological nudges, and other design techniques in 
                marketing, or that incorporate ``game-like'' features 
                and designs in their online trading applications; and
                  (B) retail customers of firms that do not use, or 
                have limited use of, gamification, psychological 
                nudges, and other design techniques in marketing and 
                that do not incorporate ``game-like'' features and 
                designs in their online trading applications.
          (8) How, and how prominently, brokers, investment advisers or 
        ``robo-advisers'' that use gamification, psychological nudges, 
        and other design techniques in marketing strategies that target 
        or include retail investors, or that incorporate ``game-like'' 
        features and designs in their online trading applications, are 
        disclosing the risks associated with leverage, complex 
        products, or excessive or frequent trading.
          (9) The various customer demographic categories (including 
        age, net worth, and investment experience) of brokers or 
        investment advisers, or ``robo-advisers'' that use 
        gamification, psychological nudges, and other design techniques 
        in marketing strategies that target or include retail 
        investors, or that incorporate ``game-like'' features and 
        designs in their online trading applications.
          (10) The relationship between (and any correlation between) 
        zero commission trading and gamification or investor 
        susceptibility to ``game-like'' features.
          (11) The degree to which the types of retail trading activity 
        that is incentivized by gamification (including the specific 
        asset classes promoted via gamification) benefits, harms, or 
        otherwise affects other market participants, and an analysis 
        thereof.
          (12) The degree to which Securities and Exchange Commission's 
        Form BD and Form ADV can be revised to help the Commission 
        better identify which registered firms use gamification, 
        psychological nudges, and other design techniques.
          (13) Whether gamification, psychological nudges, and other 
        design techniques have created investment activity or interest 
        in the capital markets by women and minority groups.
          (14) Whether gamification, psychological nudges, and other 
        design techniques have targeted women and minority groups or 
        created particular risks for them.
          (15) Any data or legal challenges (e.g., so-called 
        proprietary practices) that the Comptroller General encounters 
        in preparing the report.
  (b) Investor Testing Authority.--The Investor Advocate of the 
Securities and Exchange Commission is authorized to carry out investor 
testing as part of the study required under subsection (a).
  (c) GAO Report.--Not later than the end of the 270-day period 
beginning on the date of enactment of this Act, the Comptroller General 
shall issue a report to the Securities and Exchange Commission, the 
Investor Advocate of the Commission, and the Congress containing all 
findings and recommendations made in carrying out the study required 
under subsection (a).
  (d) Consultation.--In carrying out the study required under 
subsection (a), the Comptroller General shall consult with--
          (1) the Securities and Exchange Commission;
          (2) the Investor Advocate of the Commission;
          (3) the Director of the Office of Investor Education and 
        Advocacy of the Commission;
          (4) the North American Securities Administrators Association;
          (5) the Financial Industry Regulatory Authority;
          (6) academics, including gamification and behavioral 
        psychology experts; and
          (7) investor advocacy organizations and experts.
  (e) Report and Recommendations of the Investor Advocate.--Not later 
than the end of the 90-day period beginning on the date that the 
Investor Advocate of the Commission receives the report issued under 
subsection (c), the Investor Advocate shall--
          (1) review the report; and
          (2) issue a report to the Congress containing any regulatory 
        (including rules and policies of Financial Industry Regulatory 
        Authority and the Municipal Securities Rulemaking Board) or 
        legislative recommendations the Investor Advocate may have.
  (f) Gamification Defined.--In this section, the term ``gamification'' 
means tactics or strategies used to engage customers and incentivize or 
nudge them to transact and spend time on an investment platform, 
including increased use of notifications, prizes, use of ladders and 
leader boards, psychological tools, and design elements to incentivize 
customers to spend more time on an investment platform, to increase 
rapid trading, and to increase the number of trades.

                          PURPOSE AND SUMMARY

    On July 26, 2021, Representative Casten introduced H.R. 
4685, the Trading Isn't a Game Act, which would require the GAO 
to conduct a study on the positive and negative impacts of the 
trend of gamification of online trading platforms, such as the 
use of nudging and forms of inducement, and require the GAO to 
issue a report to Congress with its recommendations.

                  BACKGROUND AND NEED FOR LEGISLATION

    Online brokerage platforms are increasingly using 
psychological behavioral nudges when engaging with their 
customers, which includes some features commonly referred to as 
``gamification.'' Gamification in investing involves tactics 
used to increase consumer engagement, time spent on an 
investment platform, and number of trades.\1\ This includes 
design elements and psychological tools meant to keep the 
attention of its users, including emoji-filled notifications, 
prizes, graphics, and animations. Robinhood, at the forefront 
of the gamification movement by broker-dealers, provides prizes 
designed to increase engagement including a confetti animation 
when investors complete their first trade, and a chance of 
winning a share of a glamorous stock (e.g., Apple) if they get 
a friend to sign up for the platform. Robinhood also offers 
``scratch-off'' stocks, similar to scratch-off lottery tickets, 
which have variable reward schedules akin to slot machines.\2\
---------------------------------------------------------------------------
    \1\The Washington Post. Robinhood's Role in the `Gamification' of 
Investing. Dec. 21, 2020.
    \2\Business Insider. I was addicted to Robinhood and Wall Street 
Bets--and lost everything. Feb. 11, 2021.
---------------------------------------------------------------------------
    The gamification of complex investment systems has been 
shown to have detrimental consequences for novice investors' 
financial health and emotional well-being. Alexander Kearns, a 
twenty-year-old novice Robinhood investor, mistakenly believed 
that he had lost hundreds of thousands of dollars in options 
trading.\3\ Robinhood sent him an automated email telling him 
to take ``immediate action,'' and requested a payment of over 
$170,000. Believing that he had made irreparable mistakes, Mr. 
Kearns took his own life. Only on the day after Mr. Kearns died 
did he receive an email from Robinhood stating, ``Great news! 
We're reaching out to confirm that you've met your margin call 
and we've lifted your trade restrictions. If you have any 
questions about your margin call, please feel free to reach 
out. We're happy to help!''\4\ Robinhood's one-click trading 
makes trading feel like a game to such an extent that users 
have resorted to taking out loans to fund their usage, 
including one user who took out two $30,000 home equity loans 
so he could purchase and sell speculative stocks and options, 
with the aim of paying off debts he incurred from his trading 
activities.\5\ The amalgamation of gamification features, such 
as those seen on Robinhood's platform, has driven criticism 
that gamified online trading platforms encourage behavior 
similar to a gambling addiction.\6\
---------------------------------------------------------------------------
    \3\CBS News. Alex Kearns died thinking he owed hundreds of 
thousands for stock market losses on Robinhood. His parents have sued 
over his suicide. Feb. 8, 2021.
    \4\Id.
    \5\Id.
    \6\NBC. Gambling addiction experts see familiar aspects in 
Robinhood app. Jan 30, 2021.
---------------------------------------------------------------------------
    At a full Committee hearing on May 6, 2021 entitled ``Game 
Stopped? Who Wins and Loses When Short Sellers, Social Media, 
and Retail Investors Collide, Part III'', SEC Chair Gensler 
testified that the SEC would review the effects of gamification 
on retail investors, stating some brokers, like buildings in 
``Las Vegas and Atlantic City . . . [are] using psychological 
prompts and behavioral prompts to get investors to trade 
more.''\7\
---------------------------------------------------------------------------
    \7\U.S. House Committee on Financial Services, Hearing entitled--
Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and 
Retail Investors Collide, Part III, (May 6, 2021).
---------------------------------------------------------------------------
    Regulatory bodies and advocates have argued that the 
effects of gamification on retail investors need to be studied 
and understood as some of the prompts may constitute investment 
advice and often leads to needless and excessive trades.\8\ At 
a full Committee hearing on March 17, 2021 entitled ``Game 
Stopped? Who Wins and Loses When Short Sellers, Social Media, 
and Retail Investors Collide, Part II,'' Dr. Vicki Borgen 
shared that an app's interface and design ``influence the type 
of decision that a retail investor makes almost on an 
unconscious level'' and could elicit ``particular behaviors 
[that are] not beneficial for retail investors.'' On May 19, 
2021 at the annual conference of the Financial Industry 
Regulatory Authority (``FINRA''), FINRA Vice President, Amy 
Sochard, announced the organization's desire to gather comments 
from the public on the practice of gamification.\9\
---------------------------------------------------------------------------
    \8\See generally, Gibson Dunn, The GameStop Short Squeeze--
Potential Regulatory and Litigation Fall Out and Considerations, (Feb. 
1, 2021).
    \9\The National Law Review, Game On: FINRA Hints at Upcoming 
Gamification Sweep, (June 1, 2021).
---------------------------------------------------------------------------

                      SECTION-BY-SECTION ANALYSIS

Section 1

    This section establishes the short title of the bill as the 
``Trading Isn't a Game Act''.

Section 2. GAO Study on the Gamification of Investing

    This section directs the GAO to conduct a study on numerous 
positive and negative aspects of gamifications, psychological 
nudges, and other design techniques used by brokers, 
investment-advisers, ``robo-adviser'' or financial planners 
through their online platforms to affect the behavior of 
investors. The SEC Investor Advocate is authorized to conduct 
investor testing as part of the GAO study. GAO is required to 
complete the study and report it to Congress, the SEC and the 
SEC's Investor Advocate within 270 days of enactment. In 
conducting the study, GAO will be required to consult various 
regulators and entities, including the Securities and Exchange 
Commission. This subsection provides a definition of 
gamification.

                                HEARINGS

    For the purposes of section 3(c)(6) of House rule XIII, the 
Committee on Financial Services' on May 6, 2021 held a hearing 
to consider H.R. 4685 entitled, ``Game Stopped? Who Wins and 
Loses when Short Sellers, Social Media, and Retail Investors 
Collide, Part III.''

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
July 29, 2021, and ordered H.R. 4685 to be reported favorably 
to the House with an amendment in the nature of a substitute by 
a vote of 28 yeas and 23 nays, a quorum being present. An 
amendment offered by Mr. Davidson of Ohio was NOT agreed to by 
a vote of 22 yeas and 29 nays.

                  COMMITTEE VOTES AND ROLL CALL VOTES

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
following roll call votes occurred during the Committee's 
consideration of H.R. 4685:


  STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE

    In compliance with clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee's oversight findings and recommendations are 
reflected in the descriptive portions of this report.

             STATEMENT OF PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause (3)(c) of rule XIII of the Rules of the 
House of Representatives, the goals of H.R. 4685 are to require 
the GAO to conduct a study on the positive and negative impacts 
of the trend of gamification of online trading platforms, such 
as the use of nudging and other inducement, and require the GAO 
to issue a report to Congress with recommendation. The bill 
would also require that SEC's Investor Advocate review the 
report and offer its own legislative or regulatory 
recommendations to Congress.

               NEW BUDGET AUTHORITY AND CBO COST ESTIMATE

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives and section 308(a) of the 
Congressional Budget Act of 1974, and pursuant to clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 402 of the Congressional Budget Act 
of 1974, the Committee has received the following estimate for 
H.R. 4685 from the Director of the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, December 2, 2021.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Madam Chairwoman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4685, the Trading 
Isn't a Game Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Madeleine 
Fox.
            Sincerely,
                                         Phillip L. Swagel,
                                                          Director.
    Enclosure.

    
    

    H.R. 4685 would require the Government Accountability 
Office (GAO) to report to the Securities and Exchange 
Commission (SEC) and the Congress on the effect of 
gamification, psychological nudges, and other design techniques 
of online trading platforms. GAO would be required to consult 
with the SEC and private entities, such as investor advocacy 
groups, to study the effects of those techniques. Under the 
bill, the SEC's Office of the Investor Advocate would provide 
legislative and regulatory recommendations to the Congress 
based on GAO's findings.
    CBO estimates that implementing the reporting requirements 
would cost the SEC and GAO a total of $1 million over the 2022-
2026 period. However, because the SEC is authorized to collect 
fees each year to offset its annual appropriation, CBO expects 
that the net effect over the 2022-2026 period would be less 
than $500,000, assuming appropriation actions consistent with 
that authority.
    If the SEC increases fees to offset the costs of 
implementation, H.R. 4685 would raise the cost of an existing 
mandate on private entities required to pay those assessments. 
CBO estimates that, on average, the annual incremental cost of 
the mandate would be less than $1 million--well below the 
annual threshold established in the Unfunded Mandates Reform 
Act (UMRA) for private-sector mandates ($170 million in 2021, 
adjusted annually for inflation).
    H.R. 4685 contains no intergovernmental mandates as defined 
in UMRA.
    The CBO staff contacts for this estimate are Madeleine Fox 
(for federal costs) and Andrew Laughlin (for mandates). The 
estimate was reviewed by H. Samuel Papenfuss, Deputy Director 
of Budget Analysis.

                        COMMITTEE COST ESTIMATE

    Clause 3(d)(1) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison of the 
costs that would be incurred in carrying out H.R. 4685. 
However, clause 3(d)(2)(B) of that rule provides that this 
requirement does not apply when the committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
under section 402 of the Congressional Budget Act.

                       UNFUNDED MANDATE STATEMENT

    Pursuant to Section 423 of the Congressional Budget and 
Impoundment Control Act (as amended by Section 101(a)(2) of the 
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee 
adopts as its own the estimate of federal mandates regarding 
H.R. 4685, as amended prepared by the Director of the 
Congressional Budget Office.

                           ADVISORY COMMITTEE

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

              APPLICATION OF LAW TO THE LEGISLATIVE BRANCH

    Pursuant to section 102(b)(3) of the Congressional 
Accountability Act, Pub. L. No. 104-1, H.R. 4685, as amended, 
does not apply to terms and conditions of employment or to 
access to public services or accommodations within the 
legislative branch.

                           EARMARK STATEMENT

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 4685 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as described in clauses 9(e), 9(f), and 9(g) of rule 
XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of H.R. 4685 establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
federal program, a program that was included in any report from 
the Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance.

                             MINORITY VIEWS

    Committee Republicans believe every American should be able 
to invest in our capital markets. Over the last several years, 
innovation has expanded investment opportunities beyond the 
wealthy or white-collar employee--to everyday Americans. 
Despite this ``democratization of trading,'' H.R. 4685 takes 
the first step in limiting trading opportunities. Under the 
guise of a study this bill lays the foundation to eliminate 
``gamification practices'' used by broker dealers and other 
financial firms.
    H.R. 4685 directs the areas of ``gamifications'' the U.S. 
Government Accountability Office (GAO) is required to study. In 
describing the areas, the bill disregards the benefit of 
``gamification practices,'' including those practices that 
incentivize or persuade a customer to participate in the market 
when that customer would not have otherwise invested. The bill 
also disregards the fact that a platform's attractive 
investment interface may provide for a better investor 
experience. This point was further emphasized during the markup 
of H.R. 4685. The bill's sponsor made clear the bill is only to 
provide cover for Democrat-led initiatives that apply new 
regulations on the features that encouraged many new investors 
to participate in the market in the first place.
    Additionally, the study mandated by H.R. 4685 is 
duplicative of the efforts currently underway at the U.S. 
Securities and Exchange Commission (SEC) and the Financial 
Industry Regulatory Authority (FINRA).
    H.R. 4685 has additional flaws:
           The bill directs GAO to review whether 
        certain aspects of ``gamification practices'' should be 
        subject to rules under our federal securities laws. The 
        GAO is not an appropriate body to make such 
        determinations as it has no particular securities law 
        expertise.
           The bill requires the SEC's Office of 
        Investor Advocate to conduct investor testing for the 
        study and requires the GAO to consult with, among other 
        groups, academics that are ``gamification and 
        behavioral psychology experts'' and ``investor advocacy 
        organizations and experts.'' While these groups are 
        certainly relevant to conversations around 
        gamification, they typically only represent the same 
        ideological framework and are unlikely to provide a 
        truly balanced view of the issue.
           The bill also requires a report and 
        legislative recommendations from the Office of Investor 
        Advocate--notably not the full SEC and its staff--
        following the GAO study. This required report is likely 
        intended to provide an analysis that supports Democrat-
        led initiatives.
    Committee Republicans offered an amendment to ensure the 
study remained objective. However, the amendment was rejected 
by Democrats on a party-line vote. Committee Republicans 
support a balanced, objective study, not one that leads to new 
barriers in accessing trading platforms and deterring new 
investors from participation.
    For these reasons, Committee Republicans are opposed to the 
bill.
                                   Patrick T. McHenry.
                                   Frank D. Lucas.
                                   Bill Posey.
                                   Bill Huizenga.
                                   Roger Williams.
                                   Tom Emmer.
                                   Barry Loudermilk.
                                   Warren Davidson.
                                   David Kustoff.
                                   Anthony Gonzalez.
                                   Bryan Steil.
                                   William R. Timmons, IV.
                                   Ann Wagner.
                                   Pete Sessions.
                                   Blaine Luetkemeyer.
                                   Andy Barr.
                                   J. French Hill.
                                   Lee M. Zeldin.
                                   Alexander X. Mooney.
                                   Ted Budd.
                                   Trey Hollingsworth.
                                   John W. Rose.
                                   Lance Gooden.
                                   Van Taylor.

                                  [all]