- The Washington Times - Thursday, March 9, 2000

Senator wouldn't ban day trading

Senator wouldn't ban day trading Michelle Malkin's column, "When a senator takes stock of day trading" (Commentary, March 3), not only misrepresented my general view of day trading but also brushed aside unfair business practices that have caused many unsophisticated investors to lose thousands of dollars.
As I have stated repeatedly, I have no intention of proposing a ban on day trading. If an investor with adequate capital is fully informed of how risky day trading is, he should be able to day trade.
Far too often, however, the consumer has no idea of the true risks involved. Too many day-trading firms entice inexperienced and undercapitalized individuals to day trade sometimes with borrowed money they can ill-afford to lose. Our hearings found that:
m More than 75 percent of day traders lose some or all of their investment.
m The average day trader must realize gains of more than $200,000 annually just to pay commissions and fees.
m Deceptive advertising has created unrealistic expectations of easy profits.

Some day-trading branch managers forged customer documents, misrepresented applicants' financial data and transferred money from one customer's account to another without permission.
The findings of the Senate permanent subcommittee on investigations are similar to those of the Securities and Exchange Commission (SEC), state securities regulators and the securities industry's own self-regulatory organization. The regulators have recognized that this industry needs to clean up its act, as have the more responsible day-trading firms.
Contrary to the tenor of Ms. Malkin's column, I applaud the democratization of the markets. Technological developments have resulted in dramatically lower commissions, the ability to execute trades at the investor's convenience and expanded access to financial information previously available only to securities professionals.
I do not agree, however, with the notion that simply because an industry uses a new technology, it should be allowed to circumvent the most basic tenets of our securities laws.
If Ms. Malkin does not trust my analysis, perhaps she will listen to Arthur Levitt, chairman of the SEC and the former chairman of the American Stock Exchange. In testimony before the subcommittee in the fall, Mr. Levitt criticized day-trading firms for deceptive marketing and for failing to adhere to capital, margin and short-sale rules. As he pointed out, "These rules, in many ways, go to the heart of the integrity of our markets and market participants."
What Ms. Malkin fails to grasp is that reasonable and measured government regulation fosters investor confidence and is an important reason why the United States has the strongest and most successful capital markets in the world.
U.S. Senate permanent
subcommittee on investigations

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