Is cyber and the other daytrading brokers planning any response to this continuing drumbeat that has been building about daytrading? If there is not some serious, organized response to this, daytrading may well be a thing of the past this time next year.
California Senate takes up day trading
By Tim Clark
March 10, 1999, 6:15 a.m. PT
news.com
Internet stock trading is likely to come under heavy fire today when a California Senate committee opens hearings to look at that practice and other online banking and securities issues.
Specifically, the Senate Finance, Investment and International Trade Committee is expected to focus on so-called day trading, a relatively new area that has been the source of increasing concern among regulators and even brokerages concerned about investor safety and wild market swings.
"Some people say trading is kind of considered gambling," said Trudi Sprague, a consultant for the Senate committee. Citing comments made by Securities and Exchange Commission chairman Arthur Levitt, Sprague added: "Some people think it's gotten so easy to plug in and start trading stocks that there may not be enough consumer information."
Today's hearings add to recent challenges faced by online trading firms, which have seen various problems grow with their popularity, including service blackouts and slowdowns. The New York State Attorney General's office, for instance, is investigating E*Trade for a slew of service disruptions last month, and has created a task force to probe Internet-related problems in general.
Slated to appear at the hearings are two regulators who worry about brokerage firms that train people to trade stocks on small changes in price, generally ending a day by selling everything and owning nothing overnight.
"The biggest central issue is whether people know what they're getting into and whether people getting into that activity can bear the losses that can occur," said John Ramsay, deputy general counsel of the National Association of Securities Dealers' regulatory arm, who is scheduled to testify.
"It's a highly risky kind of activity, and certain firms are heavily promoting day trading as a revenue source. That raises investor protection issues that we're looking at carefully," Ramsay said.
California regulator G.W. McDonald of the Department of Corporations has similar concerns. "Day trading, in my opinion, is a more serious problem than online trading," McDonald said in an interview, noting that brokerages that teach customers how to do day trading open themselves to a host of regulatory concerns, including market manipulation and whether the traders are suited to the financial risk.
McDonald also worries about privacy issues, a focus of the Senate committee because last year chairman Tim Leslie, a Republican, authored legislation to protect the privacy of online consumers.
"This whole privacy thing is kind of scary to me as enforcement guy," said McDonald, who fears strict privacy takes away the audit trail regulators use to catch criminals. "Privacy links to confidentiality. Confidentiality links to anonymity. Anonymity links to fraud."
Hardy Collcott, general counsel of brokerage Charles Schwab, has been invited to testify, as have representatives of several banking industry trade groups, a San Francisco credit union, and other federal and state regulators. Among the organizations represented are the California Bankers Association, the Independent Bankers Association of America, the California Credit Union League, and Patelco Credit Union.
"Sometimes new technology gets out ahead of consumer awareness and protection," Sprague said.
The hearing comes as the surging popularity of online trading has created some widely reported difficulties getting onto Web sites during high-volume trading.
Earlier this month, New York State Attorney General Eliot Spitzer formed a new bureau to investigate Internet matters, including online trading, consumer scams, privacy issues, and child pornography. Spitzer's move followed formation of a similar bureau in Pennsylvania.
A Schwab spokeswoman said today that the company has been cooperating with Spitzer's office and others looking at what kind of regulation may be needed for online brokerages.
In addition to looking at Internet technologies, the hearings will examine ATM machines, debit cards, bill-paying services, and a new point-of-sale device for retailers to accept checks and immediately deduct from checking accounts. |
