|
PureBytes Links
Trading Reference Links
|
how to create the next market rally :-)))
~~~~~~~~~~~~~~~~~~~~
http://www.latimes.com/business/19991118/t000105031.html
NYSE Votes to Hike Amount Day Traders Can Borrow
Wall St.: Proposal, which requires SEC approval, would allow qualified
investors up to four times the equity in their accounts for intraday trading.
By WALTER HAMILTON, Times Staff Writer
The New York Stock Exchange has voted to boost the
amount of money that day traders can borrow to buy
stocks--despite worries by regulators that excessive borrowing
has contributed to the steep financial losses of some investors
who play the high-stakes trading game, sources said
Wednesday.
The NYSE's governing board voted Nov. 4 to allow
qualified day traders to borrow up to four times the amount in
their account for intraday trading, sources said. Currently, the
NYSE limits day traders' borrowing to twice the equity in their
account.
Thus, a day trader with a $50,000 account could buy
$200,000 worth of stocks, up from the $100,000 allowed
now.
The NYSE declined to comment, though it is expected to
unveil new rules governing margin--or borrowing--this month.
The National Assn. of Securities Dealers, which runs the
Nasdaq market, is also studying margin rules. An NASD
spokeswoman would not comment, though the NASD may
follow the NYSE's lead, sources said.
The NYSE proposal must go to the Securities and Exchange
Commission for approval. If the SEC goes along, the new
margin rules could boost the level of speculation among the
estimated 5,000 day traders working out of specialized
brokerage firms around the country.
"By and large, this is very positive for day trading," said Jim
Lee, president of day trading firm Momentum Securities and
head of the day trading industry trade group.
Day trading is a high-risk, rapid-fire trading style in which
investors seek to make outsized profits by darting in and out of
dozens of stocks each day.
State securities regulators have charged that many day
trading firms have skirted margin rules by illegally arranging
loans between customers--a practice known as journaling--so
that traders with insufficient equity can keep trading.
In August, state regulators proposed a rule to prohibit firms
from arranging loans between customers.
Not surprisingly, some regulators disapprove of the NYSE
proposal.
Day trading firms "have had problems disclosing the
likelihood of profitability, they've had significant misleading
advertising, they've skirted the rules in moving money between
accounts, and now we're going to expand [leverage] to 4-1?"
said Matthew Nestor, director of the Massachusetts Securities
Division, which has brought complaints against several firms.
Day trading firms deny that they've broken any margin rules,
and insist that customers are free to lend each other money.
Under the NYSE plan, the 4-1 margin borrowing level
would apply only to intraday trading. For an investor with
$50,000 in equity, that means that $200,000 worth of stocks
bought in the morning would have to be reduced to 2-1, or
$100,000, by the end of the trading day to comply with Federal
Reserve margin rules that govern borrowing overnight.
However, the NYSE also suggests raising the bar for
qualification: To be eligible for the higher margin, a trader
must have at least $25,000 in his account, up from $2,000
now, sources said.
Boosting minimum account size ensures that only
well-heeled traders use the higher margin, said Steven Levine,
chief of credit regulation at Southwest Securities Group, a
Dallas-based firm that processes trades for several day trading
firms.
"This is separating the men from the boys," Levine said.
To qualify for the higher margin, an investor also must be
categorized as a day trader by meeting one of three trading
patterns.
First, an investor qualifies if he day trades--defined as
buying and selling a stock in the same day--four times within
12 months, up from the current rule that requires three day
trades. Second, an investor day trades on four days within a
five-day period. Third, 6% of a customer's total trades are day
trades.
Margin rules would remain unchanged for individuals who
don't qualify as day traders--the bulk of investors trading
through mainstream online brokerages.
The NYSE rule would continue to allow journaling, sources
said. However, it would eliminate so-called cross guarantees,
where traders back up each other's accounts but often don't
shift money from one account to another.
|