The U.S. Securities and Exchange Commission (SEC) sanctioned an Israeli day trading firm for violating U.S. rules, but the case raised concerns with one commissioner.
The SEC settled with Tradenet Capital Markets Ltd., which agreed to a cease-and-desist order and to pay a US$130,000 penalty for engaging in unregistered swaps trading.
The firm settled the allegations without admitting or denying the SEC’s findings.
According to the SEC’s order, the improper trading stemmed from the “day trader education packages” sold by the firm, which included simulated trading accounts.
Traders that made money in their simulated accounts received a percentage of the notional profits, whereas traders that lost money had their accounts closed.
The SEC alleged that the structure amounted to unregistered trading in security-based swaps.
“Companies seeking to sell U.S. retail investors synthetic exposure to stocks must ensure compliance with the federal securities laws,” said Daniel Michael, chief of the SEC’s complex financial instruments unit, in a statement.
Yet, in the wake of the decision, commissioner Hester Pierce expressed reservations with the case, saying, “I do believe that there is room in our regulatory framework for creative investor education programs that give investors the opportunity to simulate trading in various financial products and assembling an investment portfolio.”
Pierce said that the gamification of education, and the use of incentives to encourage students to take games seriously, can increase educational value.
“I do not view this order as closing the door to these types of educational experiences,” she said, adding that firms offering simulated trading with financial incentives should work with the SEC to ensure it complies with the U.S. rules.