Monday November 8, 5:57 pm Eastern Time
NYSE, Nasdaq seen tightening margins for day traders
NEW YORK, Nov 8 (Reuters) - The New York Stock Exchange and the Nasdaq Stock Market are expected to announce shortly new rules that will reduce the amount of money day traders can borrow to buy and sell stocks, market sources said on Monday.
The NYSE, the world's No. 1 stock exchange, and the Nasdaq, the nation's largest electronic stock market, are expected to make such an announcement in a matter of days, sources with knowledge of the matter said.
Any action on the part of the NYSE and the Nasdaq would come at a time when experts are calling for stricter standards to curb stock market speculation. The exchanges would require their members -- brokerages -- to curb their lending to rapid-fire stock trading customers.
In fact, many brokerages already have imposed limits on how much money investors can borrow to trade certain stocks. In some cases they prohibit any such margin lending, especially for high-priced Internet stocks that can fluctuate tens of dollars a day.
Officials for the NYSE and National Association of Securities Dealers (NASD), Nasdaq's owner, declined to comment.
Day traders rapidly jump in and out of positions in often volatile Internet stocks, and typically end the day flat, or owning no stocks. They have been likened to gamblers because they often are amateur investors who trade via online brokerage accounts and seldom make money, according to regulators.
Some even have lost hundreds of thousands of dollars day trading, sometimes with tragic consequences.
Mark Barton, a 44-year-old day trader in Atlanta, this summer killed nine fellow investors at the two brokerage firms where he traded. Barton, who had racked up more than $150,000 in losses, also killed his wife and two children and later committed suicide.
The killings prompted regulators to scrutinize the practices of firms that allow people such as Barton to risk lots of capital trading in such rapid-fire style. Stock trading firms that deal in Nasdaq-listed securities said they had not heard of plans to implement more stringent requirements, but said they were not surprised.
''A lot of firms have raised margin requirements on stocks day traders like to focus on,'' said Ken Pasternak, the chief executive of Nasdaq market maker Knight/Trimark Group (NasdaqNM:NITE - news). ''I haven't heard anything on the regulatory side, but it would be a logical progression that (the NASD and NYSE) are looking at it.''
The Federal Reserve, the U.S. regulatory body that sets the maximum amount of money U.S. investors can borrow to trade stocks, or margin rates, has not changed those requirements since 1974.
At that time, the Fed decided that investors could borrow up to 50 percent of the value of the stocks they purchase. This means that if investors want to buy a stock at $50 a share, they can put up just $25 in cash and borrow the rest from their broker.
The Fed's vice chairman, Roger Ferguson, was quoted in Monday's Wall Street Journal as saying it would be ineffective to tinker with margin requirements because investors can speculate on stocks through several other methods.
The NYSE, as a self-regulated, members-only private institution, has the right to limit the type of margin conditions its member firms can extend to its clients.
The NASD has similar powers over its members who are known as NASD broker-dealers. |
