Doesn't look like rumor to me.
From the BK thread:
Internet Craze Prompts Some Brokers To Up Margins
By Jack Reerink
NEW YORK (Reuters) - The wild price swings in stocks of Internet companies have prompted some brokerages to require investors who bought these securities on margin, or with borrowed money, to put down more cash.
Boosted by demand from investors desperate to buy into the Internet gold rush, stocks of companies such as cyberspace bookseller Amazon.com recently have shot up, sometimes more than 15 percent, or tens of dollars, in a single day. But brokerages, worried by the wild price swings --known as volatility in the trade-- may dampen Internet stock speculation by tightening margin requirements.
Under securities regulations, customers buying or selling stocks on margin must put up 50 percent in cash or securities such as Treasury Bills to cover the initial transaction's market value. To maintain the position, however, they need to put up only 25 percent of the holding's value, although most brokerages require a more conservative 35 percent as a minimum maintenance.
Waterhouse Securities, a discount brokerage unit of Canada's Toronto-Dominion Bank (NYSE:TD - news), has raised maintenance margins on some Internet stocks, a spokeswoman said on Wednesday.
The measure, which applies to high-flying stocks of companies such as cyberspace auctioneer eBay Inc. and Internet services firm EarthWeb requires customers to have 50 percent in cash for holdings bought or sold on margin, instead of 35 percent.
''Whenever we see a stock that has increased volatility, we take a look at what is best for the firm and customer,'' the Waterhouse spokeswoman said.
A random survey of other brokerages showed that some, such as Merrill Lynch and Co. Inc. and Charles Schwab Corp. (NYSE:SCH - news), have left their margin requirements unchanged, while others have adjusted them.
For example, Fleet Financial Group's Quick & Reilly discount brokerage arm has raised margins on stocks that have shown increased volatility, a spokeswoman said. The move is standard operating procedure for the brokerage, added the spokeswoman, who could not identify the stocks affected by the measure.
Rumors about brokerages, and even regulators, tightening margin requirements for trading in Internet stocks surfaced earlier this week. But a spokeswoman of the regulatory arm of the National Association of Securities Dealers (NASD) told Reuters regulators are not about to meddle with margins.
''Any sort of change in the margin requirements would have to be proposed to the (NASD) board and then sent on to the (Securities and Exchange Commission), (and) we have nothing even under consideration,'' NASD spokeswoman Nancy Condon said. An SEC spokesman declined comment.
Investors who fall below margin requirements receive the infamous margin call from their broker, who tells them to pony up more cash or liquidate their stock position. If a customer doesn't pay up and a forced liquidation fails to cover the investor's debts, the brokerage gets stuck with the bill.
Internet brokerage AmeriTrade Holding Corp. recently wrote off $1.6 million, in part because customers speculating in shares of small companies went bust when some of these small cap stocks plummeted over the summer.
''We have put in place better techniques to implement our (margin) policies much quicker,'' said AmeriTrade's chief executive, Joe Ricketts, in a brief telephone interview.
AmeriTrade requires maintenance margins of up to 80 percent for stocks whose price ''starts getting beyond anything that is reasonable investment,'' Ricketts said, naming as examples stocks that carry a price to earnings (PE) ratio of more than 25.
Analysts often use PE ratios, which are calculated by dividing a company's stock price by its earnings per share, as a method of valuing corporations.
Although Ricketts would not pinpoint stocks included in the firm's 80-percent margin requirement, Internet stocks are likely to fall into the group because they often lack the second part of the PE equation -- earnings.
Okay, enough about that. Now for one of my thoughts. If any of you think buying and selling stocks like NAVR today is investing, maybe you should go back and reread some of your stock market primers. It's gambling, pure and simple. Now it's your money, and you are free to risk it in any fashion you so chose (and I have done so from time to time myself). But for God's sake, people, when you roll a seven and lose thousands of dollars, please don't whine about it, OK? Just accept it as the new information age's answer to Las Vegas and deal with it. Before this is over, you all may end up very thankful that your broker took measures to limit your greed when we did not have the willpower or intelligence to fight it ourselves.
Secondly, isn't anybody out there concerned about the volatility of the market in the last several months? Isn't that often a good indication that we may be in the midst of a major trend reversal? One reason for the lack of recent stability is that the Internet is becoming more and more overloaded with inexperienced and very unsavvy day traders who have never lived through a true bear market and have never bothered to read about the history of Wall Street. I don't claim to be an expert by any means, but I have studied it enough to know that something is very wrong here and now when you have action like we saw today. And when it comes (not IF it comes), alot of you aren't going to believe the devastation because you just haven't bothered to do your homework. I don't care if margin requirements are 35%, 50%, or 80%, you are gonna get stung, and stung badly.
Now that my sermon is done, I have to go check the prices on a multitude of put options.
I still wish everyone good fortune and happy investing...errr, make that happy gambling.
Regards,
Dale |
