- The Washington Times - Tuesday, June 19, 2001

The bear market and increased government scrutiny in the past year have put a damper on the day-trading frenzy.

Fewer people are getting into it amid reports that most, rather than making a mint, are losing thousands of dollars. And the Securities and Exchange Commission is clamping down on firms that have in the past misled their clients with advertising that boasts unrealistic results.

The trend has forced some day-trading offices out of business.

A Tysons Corner branch office of Montvale, N.J.-based All-Tech Direct Inc. closed last month, citing slow business. And All-Tech last week settled a year-old complaint with the SEC agreeing to pay a $225,000 fine. The SEC claimed that All-Tech lent money illegally to its day-trading clients.

All-Tech Chairman and CEO Harvey Houtkin downplayed the complaint, calling it a "campaign against the brokerage community." He remains optimistic about the future of day trading, though he admits that All-Tech is losing business.

"There just wasn't enough volume to continue operating an office," Mr. Houtkin said. "Trading volumes are down in excess of 30 percent. Everyone has seen that."

The Electronic Traders Association reports that there are roughly 5,000 "professional" day traders, which it says has not changed in the last few years. Industry observers say, however, that the number of day traders is going down.

Still, the industry is by no means dead. Industry officials say the economic slowdown has been a valuable learning experience for firms and their clients.

"There's been a certain Darwinian shake-out," said Ashley Baker, spokeswoman for the North American Securities Administration Association. "Fewer and fewer people are quitting their day jobs."

Mr. Houtkin said his company's clients have become smarter and more professional.

"Many of these people are doing quite well," Mr. Houtkin said. "In the past, too many people wanted to trade because it looked so easy. People were captured by the idea of trading on the Internet and came in looking to make fast dollars. Well, that stopped."

A 1999 NASAA study found that the average day trader lost more than $36,000 annually. In the next two months, the association will begin a follow-up study, NASAA President Deborah Bortner said.

While day traders tend to like a volatile market, many are shying away amid the current conditions, she said.

"This isn't the kind of market that got people interested," said Mrs. Bortner, also the director of securities for the Department of Financial Institutions in Washington state.

The day-trading industry has come under scrutiny by the SEC, which issued a report in January warning firms against providing misleading information to clients. This warning came after the SEC sued two firms All-Tech and Investment Street Co. for illegal loans. Both companies have paid fines.

Since then, Mr. Baker said, many firms have toned down advertising and are now more forthcoming with information about the risks of day trading.

"Firms are doing a better job of disclosing the truth," Mr. Baker said. But, he said, NASAA still has seen some "questionable" loan activity by some firms.

Meanwhile, online brokerage firms like Ameritrade, CFSB Direct and E-Trade are holding their own, said Russell Keene, analyst with Keefe, Bruyette and Woods in New York. He released reports of all three companies yesterday, giving them moderate ratings.

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