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To: Zeev Hed who wrote (19831)	3/27/2001 8:59:27 AM
From: Art Bechhoefer	Respond to of 60323

Zeev, I agree that the prevalence of derivatives, such as options, can reduce the effectiveness of margin requirements somewhat. But there are major differences. First, consider what would happen if there were no margin requirements. If, as you believe, adjusting margin requirements has little effect, then theoretically one could reduce margin requirements to zero and nothing bad would happen. Does anyone believe in the tooth fairy? Second, note that in order to participate in the options market, one must sign a written agreement with the brokerage firm, acknowledging that options are extremely risky, akin to out and out gambling, where an investor can lose everything. Thus, the risk of trading derivatives is placed squarely where it belongs -- with the investor. Few brokers are willing to discourage an investor from buying on margin because it generates so much extra income for the brokerage firm, not only in loan interest but in larger commissions from buying larger quantities of stock (for those firms that don't have a single transaction charge). The problem isn't that margin rate requirements aren't effective, given all the other alternatives. The problem is that there aren't sufficient restrictions placed on imprudent use of margin, derivatives, and other alternatives, such as getting a second mortgage and using the cash generated to buy more stock. Some people don't like regulation--any type of regulation. I believe that regulation, particularly as concerns margins, forces an investor to look at longer term investment alternatives before plunging into the market on the presumption that damn near everything is bound to go up. Art