Over the past years, so-called “Neobrokers”, offering commission free trading paired with appealing interfaces have gained massive popularity in Europe. Platforms, such as Trade Republic, Trading212 or Bux are particularly popular among younger investors as they are cheaper and more accessible than traditional brokerages of banks.
Now, the recent controversy involving GameStop, has put European authorities on alert. Steven Maijoor, chairman of the European Securities and Market Authority has announced the intention to investigate the business model of Neobrokers in a Parliament hearing.
Special attention is being directed towards the payment for order flows, in which brokers get paid commissions by routing transactions to liquidity providers. Maijoor stated that this might “substitute commissions that are otherwise paid by clients, creating conflicts of interest and less transparency”.
Other concerns revolve around gamification of trading, impairing consumers risk awareness and increasing the popularity of option trading and leveraged strategies.