Name
Global FinTech Guide
Country _ Name
United States
SectionTitle
Trading platforms/social trading platforms/signal following
Body
FinTechs belonging to this category operate trading platforms or online marketplaces for investment opportunities or certain financial contracts – e.g. securities, factoring etc. and sometimes furthermore provide contact to financial experts and tools for the decision-making.

FinTech-signalling and social trading platforms provide users with the opportunity to exchange opinions on financial investments and offer signal providers and traders the possibility to make their securities portfolio publicly visible. This way the portfolios can be linked to and followed by other traders via the platform automatically, so that the trading and investment strategy of the followed traders can be copied.

The platform often cooperates with a financial services provider or a credit institution where both the trader and the follower hold their securities accounts, and which execute the orders both of the trader and the follower and to which the platform passes on the trading decisions.

Introduction

Attitude of the country towards trading, social trading or signalling platforms

Online trading platforms are widely accepted and prevalent in the United States. Many newer platforms integrate social-trading features that allow users to observe, follow, or replicate the activities of prominent or influential investors combining investment functionality with social interaction..

Regulators generally maintain a technology-neutral stance toward financial innovation, supporting digital transformation while emphasizing investor protection and market integrity. Under the current administration, regulators have placed greater emphasis on supporting innovation and competitive market entry in financial technology, particularly in areas such as digital trading infrastructure and data-driven investment tools.



Legal affairs

Obligations and requirements to provide trading, social trading or signalling platforms described above

Trading, social trading, and signal-following platforms may fall under various regulatory regimes, depending on their functions and features. A platform that simply allows users to share opinions on stocks, such as Reddit, or that only routes orders to a regulated entity, might not face direct regulation.

Platforms that let users follow specific participants or receive recommendations from them could be classified as investment advisers, thus falling under the Advisers Act. Similarly, platforms providing algorithmic trading signals for buy or sell decisions are likely to be regulated as investment advisers. In contrast, platforms offering general economic indicators without specific trading recommendations generally remain unregulated.

Platforms facilitating trading transactions may need to register as broker-dealers or have a registered broker-dealer manage their trading operations. For platforms enabling peer-to-peer exchanges, they might be considered securities exchanges. However, it is common for such platforms to operate as alternative trading systems (ATS), a category of broker-dealer that is exempt from securities exchange registration but is subject to significant additional regulations .
The discussion below focuses primarily on trading platforms that are broker-dealers, alternative trading systems, or securities exchanges.

Broker-dealers generally are subject to the regulatory requirements described in asset and portfolio management—Legal affairs section above.

Absent an exemption, a platform would be considered a securities exchange if it constitutes, maintains, or provides a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange. Securities exchanges are subject to extreme regulation and themselves need to become self-regulatory organizations with their own sets of extensive rulemaking that need to be approved by the SEC. For this reason, there are only about 30 registered securities exchanges and almost all of them are operated by the same parent companies.

Most often, FinTech platforms sidestep the need to register as exchanges by routing orders to regulated entities for execution, effectively serving as communication systems. Such platforms may remain unregulated platforms may also exempt themselves from registration as a securities exchange by operating as an ATS. An ATS is a system that provides a marketplace or facilities for bringing together purchasers and sellers of securities but does not set rules governing the conduct of subscribers other than by exclusion from trading. Any ATS must be a registered broker-dealer, file Form ATS, and submit to the SEC and FINRA detailed information regarding the types of subscribers it expects to admit, the securities it expects to trade, the manner in which the system operates and the relevant infrastructure and procedures for operation of the ATS. An ATS is subject to extensive reporting requirements and increased oversight in relation to other broker-dealers, but the gap between a regular executing broker-dealer and an ATS is much, much smaller than the regulatory gap between an ATS and a national securities exchange.

Platforms that involve trading of commodity interests or swaps may instead be subject to the jurisdiction of the CFTC and the NFA under a completely different regulatory regime.




Additional comments regarding the legal situation for trading, social trading or signalling platforms or what FinTech’s must be aware of in this business area

While the prior administration passed or proposed several regulations that expanded who is required to register with the SEC, the proposed regulations have been pulled and it is in the SEC’s current rulemaking agenda to rescind a new rule that expanded the definition of “dealer”.



Economic conditions

Market size for trading, social trading or signalling platforms and biggest companies in this business area

Reliable data on the market size for online trading platforms compared to traditional trading methods is limited. However, online trading platforms have gained substantial acceptance and market presence. FinTech-only firms have experienced significant growth in the past decade, that growth appears to have tapered off.
Social trading platforms and forums have also seen considerable growth. For instance, the r/wallstreetbets subreddit, a key player in social trading advice, boasts over 12 million members. This community has notably influenced market movements, contributing to significant price volatility in "meme stocks" such as GameStop and AMC Networks.

In terms of major players, besides Robinhood, other prominent trading platforms include E*TRADE, TD Ameritrade, and Interactive Brokers. Additionally, FinTechs like Webull and Moomoo have emerged as significant competitors in the space. These platforms collectively manage substantial volumes of trading activity and user assets, reflecting the growing trend towards online and social trading.




Additional comments regarding the economic situation for trading, social trading or signalling platforms or what FinTech’s must be aware of in this business area

The trading, social trading, and signal-following sectors may be poised for potential regulatory changes, as current frameworks may not fully address the unique aspects of these platforms. While specific new regulations have not yet been proposed, there is a growing expectation that regulators will introduce measures to address the evolving landscape. FinTech companies operating in these areas should stay informed about ongoing discussions and potential regulatory developments, as changes could significantly impact their operations and compliance requirements.

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