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 common and broadly accepted. A number of these platforms, particularly newer ones, allow users to “follow” the activities of more popular or famous investors. The SEC has signalled that it may try to limit this type of activity. While regulators have a positive attitude towards technology and have stated that they strive to be “technology-neutral,” recent rule proposals have heavily favoured investor protection over innovation. Furthermore, following the WallStreetBets “meme stock” fiasco, both the SEC and Congress have investigated ways to reduce social influence in trading.
Legal affairs
Obligations and requirements to provide trading, social trading or signalling platforms described above
Trading, social trading and trade signalling platforms could be subject to any number of different regulatory regimes. A platform that merely allows investors to share their thoughts on what stocks to trade, such as Reddit, or that merely routes orders to a regulated entity may not be regulated at all. A platform that has a more formal program where sanctioned participants can be followed or make recommendations to the community may be regulated as an investment adviser. Further, a platform that presents algorithmic signals indicating when it is a good time to buy or sell a security likely would be regulated as an investment adviser (though someone who merely presents economic indicators likely would be unregulated). A platform that merely allows trades likely would be registered as a broker-dealer or would need to have a registered broker-dealer run that aspect of the platform. If the platform truly allows exchanges on a peer-to-peer basis, it may be a securities exchange, although it is quite common for registered broker-dealers to instead operate an “alternative trading system” (ATS) that is exempt from securities exchange registration (while subject to significant other regulations applicable to broker-dealers).
For a discussion of the regulatory requirements facing investment advisers, see “Asset and portfolio management—Legal affairs” above. 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” 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 st