Online Brokers Raise Net Stocks Margin Requirements
New York, Dec. 1 (Bloomberg) -- At least five online brokerages have increased
margin requirements on Internet stocks since mid-November, citing volatile
prices and heavy volume. Waterhouse Securities Inc. has raised margin
requirements on an ''unprecedented'' 24 stocks -- 20 of them Internet-related
-- within the past two weeks, said John Chapel, president of the No. 3 online
brokerage.
At least four other online trading companies, Ameritrade Holding Corp.,
Donaldson, Lufkin & Jenrette Inc., E*Trade Group Inc. and SureTrade Inc., have
also raised margin requirements on some Internet stocks. A spokesman for
Charles Schwab Corp., the largest U.S. online broker, said it hasn't increased
its 35 percent margin requirement and still examines margin levels on a case-
by-case basis.
The stocks on the Waterhouse list include online bookseller Amazon.com Inc., online auctioneers eBay Inc. and OnSale Inc., Web directory Yahoo Inc., online ''community'' theGlobe.com Inc., and several companies establishing Web storefronts, including K- Tel International Inc. and Books-A-Million Inc.
''I would say that the numbers are unprecedented for us,'' said Chapel, whose brokerage, now a wholly owned subsidiary of Toronto-Dominion Bank, was founded in 1979. ''The last time I saw anything like this was during the biotech craze of the early 1990s ... but that was only 10 to 20 percent of the breadth of this.''
New York-based Waterhouse raised its standard 35 percent margin to between 40 percent and 50 percent for the 24 stocks on its list. Margin requirement is the amount of cash an investor must have on deposit in order to buy or sell stocks using borrowed money.
Chapel said the size of Internet stock price swings led him to boost margin requirements, and he will monitor and adjust the list each day based on trading results, especially with ''five or six'' initial public offerings due this week for Internet stocks.
''The depth of this is so broad and there's so much interest and so much money was flowing into it that I decided to do this so the people may be a bit more conservative,'' said Chapel.
Stocks like Amazon, Yahoo and theGlobe have seen price swings of 20 or more points a day in the past two weeks, and the Inter@ctive Week index of 50 Internet stocks is up 89 percent this year -- and rose 16 percent between Nov. 13 and Nov. 27.
''It's a dynamic process, we adjust these from time to time, and it's not just Internet stocks,'' said Denise Benou Stires, a spokeswoman for DLJ Direct, the No. 7 online brokerage. She said some stocks now carry requirements of a 100 percent margin, meaning they cannot be bought on credit, although she declined to disclose which individual stocks are affected.
New Requirements
Investors don't learn about the new requirements until they actually try to buy the stock, Stires said, at which point they are told if they do not meet the minimum requirements.
Suretrade, the No. 8 online trading company, now has 19 stocks on its
''watch'' list, said spokesman Charles Salmans. He said stocks on the watch list trigger a review of customer accounts that contain those stocks, and margins are increased if the customer is relatively new or is ''overwhelmingly invested'' in one of the stocks, he said.
Suretrade is a wholly owned subsidiary of Fleet Financial Group Inc.'s Quick & Reilly/Fleet Securities Inc. brokerage.
Ameritrade and E*Trade also wouldn't publicly disclose individual stocks carrying increased margins.
''We've been more focused on ... the Internet stocks -- the ones that have been so volatile lately,'' said Lisa Nash, vice president of customer management for E*Trade, the No. 2 online brokerage behind Schwab.
''There is no one particular list'' of stocks on which margins have been boosted, she said. Instead, E*Trade looks at volatile, heavily traded stocks and at customer accounts with large positions in those stocks and selectively raises margins from 30 percent to 50 percent; the number of accounts with stocks carrying 50 percent margins has increased by an unspecified amount over the past two weeks, she said.
Waterhouse's Chapel said he didn't think the increase in margin requirements contributed to the decline in Internet stocks this week.
Bill Burnham, electronic commerce analyst with Credit Suisse First Boston Inc. agreed that margin requirements did not have a significant impact in the drop in Internet stock prices. '' The market is ebbing and flowing as though there's a hurricane coming through there and this doesn't make much difference,'' he said.
Waterhouse Securities Stocks With Increased Margin Requirements:
Airtran Holdings Inc., symbol AAIR, new margin 40%
Amazon.com, AMZN, 40%
Andrea Electronics Corp., AND, 40%
CBT Group Plc ADR, CBTSY, 50%
Computer Literacy Inc., CMPL, 50%
EarthWeb Inc., EWBX, 50%
EBay, EBAY, 50%
theGlobe.com, TGLO, 50%
Globix Corp., GBIX, 50%
Infonautics Inc., INFO, 50%
K-Tel International, KTEL, 40%
MicroSemi Corp., MSCC, 40%
Trans World Airlines Inc., TWA, 40%
OnSale, ONSL, 40%
Egghead.com Inc., EGGS, 50%
Open Market Inc., OMKT, 50%
Spyglass Inc., SPYG, 50%
Navarre Corp., NAVR, 50%
Audio Book Club Inc., KLB, 50%
Yahoo Inc., YHOO, 40%
Books-a-Million, BAMM, 50%
Connect Inc., CNKT, 50%
CyberCash Inc., CYCH, 50%
14:54:07 12/01/1998
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