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Thought that this might be of interest. Ira.
By Anne Marie Kelly, Bridge News
Washington--Feb 25--Reports by congressional
and federal and state securities regulators
released Friday found no widespread fraud in the
day trading industry but said that many day
trading firms have numerous securities laws
violations.
* * *
The most common violations were inadequate
disclosure to potential customers of the risks
involved in day trading and deceptive
advertising, according to the reports.
The release of the reports coincided with a
Senate subcommittee hearing on day trading,
convened Thursday and Friday.
The Senate Permanent Subcommittee on
Investigations heard testimony from regulators,
current and former day traders and from the
heads of the country's major day trading firms
about the disclosure given to customers and the
loan practices used by the firms.
Sen. Susan Collins, R-Maine, who chairs the
committee, said that she will not seek legislation
banning the industry. But she said that she is
troubled by the findings that many firms have
accepted customers who do not meet the
financial thresholds to day trade.
"The desire for more customers and more
commission revenue has produced a race to the
bottom as firms have lowered or ignored their
own standards," said Collins in her opening
statement Friday.
Collins, along with Sen. Carl Levin, D-Mich., the
lead Democrat on the subcommittee, sparred
with Harvey Houtkin, chief executive officer of
Montvale, N.J.-based All-Tech Direct over
whether the firm made inappropriate margin loans
to some of its customers.
"They've already made their conclusions about
this case," said Houtkin. "They're either
hypocritical or naive about the industry. This
trading is perfectly legal and they've basically
created the problem that they are now
chastising."
All-Tech was the subject of an SEC suit earlier
this week charging it made $3.6 million in
improper margin loans. The firm is fighting the
charges.
But Collins acknowledged Friday that many day
trading firms have improved their written
disclosures after coming under regulatory and
congressional scrutiny in the past year.
The Securities and Exchange Commission
released a report Friday that showed that in a
broad examination sweep last year of day trading
firms, a number of them had "serious violations"
which could lead to enforcement actions.
On Tuesday, the SEC sued 2 day trading firms,
Investment Street Co. and All-Tech Direct, in
connection with making loans to their customers
above the legal limits.
Examinations by the regulatory arm of the
National Association of Securities Dealers, the
NASD Regulation, also showed that some day
trading firms were not in compliance with
securities rules.
On Thursday, the NASD Regulation said it filed 8
enforcement actions against day trading firms for
alleged improper loans to customers and
misleading advertising.
A report by the watchdog arm of Congress, the
General Accounting Office (GAO), said that 80%
of the day trading firms it studied had "
problematic" advertisements.
Collins echoed the comments by the regulators in
their reports about deceptive advertising that
misleads customers into believing they can make
a great deal of money day trading.
While there is no data available verifying the
profitability of customers who day trade, the
GAO said, its report said that 70% of all day
trading customers lose money.
A report released by the Washington state
securities regulators showed that 77% of all day
trading accounts it studied were unprofitable.
But the GAO also reported that there is no
evidence available to show the impact day
trading has on the volatility in the market.
There are 7,000 active day traders, the GAO
reported, and while they only make up .01% of
all individuals trading, they account for 10% to
15% of the trading volume in Nasdaq each day,
the GAO said. End
Bridge News, Tel: (202) 220-3757
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