Not only are the bashers under attack, MMs being heavily scutinized, shorting/naked shorting being dealt with, Canada and shorting being dealt with, OTC forced to come under compliance but they are also dealing with the day traders ...
Friday December 10, 5:22 pm Eastern Time
FOCUS-NYSE, Nasdaq to tighten rules for daytraders
(adds more comments, background)
By Elizabeth Smith
NEW YORK, Dec 10 (Reuters) - The New York Stock Exchange and the Nasdaq market on Friday moved to make it more difficult for day traders to buy and sell stocks ``on margin' amid growing concern about the ripple effects of speculative trading.
The nation's two largest stock markets, in a rare joint announcement, said they would seek to place day traders in a distinct, high-risk group that would be faced with stricter margin requirements than long-term investors.
Industry groups, along with some traders, hailed the decision as a prudent measure to keep amateur investors from sustaining massive losses in what most would describe as a high-risk investing game.
``This is a protection for the brokerage firm, which of course would be an indirect way to protect the investors,' said Elise Walter, chief operating officer of NASDR, the National Association of Securities Dealers's regulatory arm.
``There has been sort of a mismatch in the traditional ways margin rules work and the way they apply to this relatively new scheme of trading,' Walter said.
Day traders focus solely on short-term gains, buying and selling highly volatile stocks within a single day at the risk of massive losses. They typically close out positions at the end of each day, leaving only cash in their account.
This style of investing came under fire after 44-year-old Mark Barton killed nine people at two brokerages in Atlanta. Barton, a day trader who racked up more than $150,000 in losses, also killed his family and later committed suicide.
Such investors are not typically members of the NYSE, although they often rely on NYSE-member firms to clear their trades. A higher percentage of NASD member firms, however, do engage in day trading.
The NYSE and Nasdaq are seeking to define day traders as investors who move in and out of a single stock more than four times within five days in one specific margin account.
The initiative on the part of the markets follows a recent decision by the Federal Reserve to leave national minimum margin requirements unchanged. The Fed allows investors to borrow up to 50 percent of a stock purchase. For example, an investor who wants to purchase $100 worth of stock can borrow up to $50 for that deal.
The NYSE and NASD proposals would force day traders to maintain a minimum of $25,000 at all times in their margin accounts, versus $2,000 for other margin account holders. Day traders currently only have to keep $2,000 in their accounts.
The high-risk group would also only be able to invest up to four times the amount of equity they hold in an account at any time during the trading day.
If a day trader violates that limit, his borrowing privileges would be cut to only double the value of the equity in his account. Also if he fails to make good on a margin call, he would only be able to invest with their own cash for a period of time.
``I think it is a good thing to make sure people aren't betting their last dollar on trading,' said Ron Shear, chief executive of Carlin Financial Group, a New York firm that services professional traders. ``For lots of people this is too much like a game. This firm never takes people with less than $25,000.'
The Securities Industry Association, Wall Street's main trade group, also lauded the move, saying the NYSE and the Nasdaq were acting in the best interests of investors.
The North American Securities Administrators Association (NASAA) also gave its thumbs-up to the proposed rule changes.
``Day trading is a very risky behavior and higher margin requirements may help reduce potential losses,' NASSA President Bradley Skolnik said.
The NASD and the NYSE said they would submit the proposed rule changes with the Securities and Exchange Commission, the federal agency that has to approve market rule changes. The SEC typically puts out a proposal for comment before making a final decision. The process can take several months. |
