Regulating Democratized Investing

Robinhood and its imitators activated millions of new investors. Perhaps we should applaud them for finally resurrecting the retail investor after a decades-long decline. There are, however, reasons for concern. Robinhood racked up record fines in the run-up to its IPO. Its users are young, inexperienced, and prone to speculating in risky investments. Given these concerns, this Article considers how to protect this new class of “ultra-retail investors” while also leaving regulatory breathing room for these new market participants. It concludes that many current regulatory approaches risk being ineffectual or stamping out ultra-retail investing altogether by targeting product features that were instrumental to Robinhood’s ascent. This Article therefore proposes a new approach that better balances paternalistic notions of investor protection, on the one hand, and investor access and choice, on the other hand. Specifically, this Article proposes a regulatory safe harbor for small accounts. Instead of trying to make investing safe, or excluding investors from investments deemed unsafe, the proposal maximizes investor choice and access within limits