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To: Doug Robinson who wrote (89527)	3/21/2000 4:35:00 PM
From: lee kramer	Read Replies (2) \| Respond to of 120523

Senate panel urges stricter day trading limits Reuters Markets News - March 21, 2000 15:28 (Read this...you dastardly day-traders) WASHINGTON, March 21 (Reuters) - A U.S. Senate panel urged the New York Stock Exchange and the parent of the Nasdaq market to beef up their proposals that are designed to make it tougher for day traders to operate and buy and sell stock on margin. The Senate Permanent Subcommittee on Investigations urged the two markets require day traders to have $50,000 of equity in their accounts to trade with borrowed funds, known as "on margin", double what the exchanges proposed last month. "Because the evidence is overwhelming that $50,000 is a limiting minimum for day trading success, margin requirements should reflect that," the panel said in a letter to the Securities and Exchange Commission made available on Tuesday. The subcommittee also said that if a day trader's account fell below the proposed $50,000 threshold at the end of the day, the trader would not be allowed to day trade on margin the next day. Currently, day traders only have to keep $2,000 in their accounts. The Federal Reserve has left the national minimum margin requirements unchanged since 1974, allowing investors to borrow up to 50 percent of a stock purchase. The Senate subcommittee determined through its investigation into the day trading industry that an average day trader would have to generate a trading profit of more than $111,360 to reach profitability for the year. The panel also recommended the regulators at Nasdaq propose a rule that would prohibit day trading firms from arranging loans between customers to meet margin calls. "These lending programmes effectively undermine the margin requirements and could likewise evade the purpose of the proposed minimum equity requirements," the letter said. The letter was signed by Sen. Susan Collins, chairman of the panel and a Maine Republican, and Sen. Carl Levin, ranking minority member of the subcommittee and a Michigan Democrat, and Sen. Richard Durbin, an Illinois Democrat. Day traders focus almost exclusively on trying to rack upshort-term gains, buying and selling extremely volatile stocks within a single day and typically closing out their positions at the end of the day leaving only cash in the accounts. FOCUS ON DAY TRADING The practice of day trading drew the attention of Congress and regulators last summer after one day trader killed nine people at two brokerages in Atlanta and his family after totalling up more than $150,000 in losses. The Senate investigation panel was already investigating various aspects of securities fraud and Internet trading for more than a year when issues surrounding day trading emerged. The NYSE and Nasdaq's parent, the National Association of Securities Dealers Inc., proposed rule changes last month designed to beef up the requirements for approving day trading accounts and disclosing the risks associated with the practice, in addition to the $25,000 margin requirement. Plus, the proposed changes would limit day traders to investing up to four times the amount of equity they hold in an account. If the trader violated that limit, it would be cut to double the the equity held in the account. The Senate subcommittee strongly urged the regulators to make their proposals even stricter. While the markets proposed firms take into consideration a trader's income, tax status, net worth and experience among others things when evaluating whether a customer is suited to day trade, the Senate panel said that those factors were necessarily not a good predictor of success or failure. Instead, the subcommittee proposed that a day trading firm must presume a customer is not suited for day trading if they do not have $50,000 to open an account and the individual must provide further evidence that outweighs the inadequate capital risk. If still approved, the Senate panel suggested that the firm would have to maintain a record spelling out why that customer was approved for day trading. BEEFING UP DISCLOSURE The panel recommended that for day trading customers who do not have $50,000 of risk capital to open an account be given an added disclosure statement spelling out that with less money, the chances of making profits are greatly diminished. "The firm would then be required to obtain the customer's signature on that form to acknowledge that the customer has read the added disclosure," the Senate panel's letter said. The senators also urged the NASD propose a rule that would set out guidelines for day traders who trade the accounts of others to ensure they are complying with rules governing investment advisers. -------------------------------------------------------------------------------- A traders's nightmare?