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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: pae who wrote (6598)	2/25/1999 7:42:00 PM
From: Gary M. Reed	Read Replies (2) \| Respond to of 12617

Pae, Your comments are well taken and interesting. I had never heard of this guy Klink before, but should've known it was only a matter of time before some previously unknown politician used it as their battle cry. My personal opinion is that this anti-daytrading sentiment is not coming from the MMs per se, but rather from the retail brokerage contingent. The MMs have taken some hits on some of the wild trading of a few of the Internet stocks, but by-and-large, they like to see active markets because they make their money from order flow. I used to run an OTC desk for a small brokerage here in Louisiana and believe me, these MMs are generally good guys and 99% of the time are on the up-and-up. I'd much rather trade a Nasdaq stock with a full cadre of market makers than deal with one specialist on the NYSE who controls all order flow. But I digress. Rather, I think the anti-daytrading stuff is coming from the retail brokerage side of the business. Online trading presents a real dilemma for them. It goes without saying that it puts pressure on commission rates. The wirehouses are loathe to give clients access to online trading for good reason. Let's say I'm a Smith Barney broker. My clients have online access to trading. Unbeknownst to me, one of my clients goes wild one day and invests his total nest egg in a $300 internet stock. Intraday, the stock goes from $300 to $150. The next day, the client files a complaint with the NASD, claiming I and/or Smith Barney shouldn't have let him buy the stock since it did not meet his investment objectives. Even though I had no way of knowing the trade was placed until after it was made, I would probably lose the arbitration claim. Also, let's face it, the traditional retail broker is at a disadvantage in order speed to an online outfit like Schwab. You want to buy 1000 shares of AOL in a fast market. You call the broker, give him the order. The broker then looks up your account number, writes the ticket (manually), then walks it up to the order cage. The order clerk types it in and gives a fill about a minute later. The whole process takes approx. 5 minutes, and that's if the broker isn't tied up with another client at the same time. Compare that to an online deal where the client can log on, type in the order and get a fill, all in less than 20 seconds. While the retail guys are still doing wonderful business to date, they see some of their best, most active clients taking their business to Schwab, Etrade, etc., and it hurts. Instead of customers buying high margin products like UITs, wrap accounts and loaded mutual funds, the clients are using their money to trade, which really hurts. Since they haven't yet figured out a way to effectively compete head-on with the onliners, the "white shoes" decide to wage a media war, telling horror stories about some idiot who quit his job and blew his "nest egg" of $20,000 daytrading. They wave politically-earmarked greenbacks around, which attracts guys like Rep. Klink. The general public hears stories like this and takes the bait. Heck, just last week I got a call from my mom. She tells me, "you know, I've been seeing a lot of stuff recently on this trading stuff...are you sure you're okay?" as if she thought I had lost my mind. I think you are correct in that we need some sort of lobbying effort to offset the Klinks of Washington. Hopefully the online firms will see the writing on the wall and champion this effort. In the meanwhile, it wouldn't hurt if everyone who used online brokerage services would drop their congressmen a note. These guys do indeed listen and if enough people let them know that this is not an online casino (contrary to popular belief), then we may be spared of any gestapo-like regulation. Because you know our adversaries would love to see margin requirements raised, trades scrutinized by compliance officers, and anything else that would make us think about going back to the white shoes. Good luck Gary

To: pae who wrote (6598)	2/26/1999 12:49:00 AM
From: shag007	Read Replies (3) \| Respond to of 12617

pae, your absolutely right about The structure of the ETA and about how much involvement one would have as a member being an individual trader. I had never noticed that before until you pointed it out to me some time ago. But at the same time if there lobbying for daytrading firms to survive, even if it's their own, then I don't see how it could be so detrimental to us. Their position statements seem to be in line with the issues we all need addressed. FDA