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NASD PROPOSES DAY TRADING
REGULATIONS
On March 25, 1999 the National Association of
Securities Dealers, Inc. (NASD) Board of Governors requested comment on proposed rules
requiring day trading firms to undertake certain account opening procedures and to make
certain risk disclosures.
The proposed rules require a firm that has
recommended a day trading strategy to weigh essential investor information including
financial situation, investment experience, and investment objectives before approving the
account.
The proposed disclosure statement would advise
customers to consider six points before engaging in day trading:
- Day trading can be extremely risky.
Customers
should be prepared to lose all of the funds that they use for day trading. They should not
fund their day trading activities with retirement savings, student loans, second
mortgages, emergency funds, funds set aside for purposes such as education or home
ownership, or funds required for current income;
- Be cautious of claims of large profits from day
trading.
Customers need to be wary of advertisements or other statements that
emphasize the potential for large profits in day trading. Day trading can also lead to
large and immediate financial losses;
- Day trading requires knowledge of securities
markets.
Day trading requires in-depth knowledge of the securities markets and trading
techniques and strategies. In attempting to profit through day trading, an investor must
compete with professional, licensed traders employed by securities firms. An investor
should have appropriate experience before engaging in day trading;
- Day trading requires knowledge of a firm's
operations.
An investor should be familiar with a securities firm's business
practices, including the operation of the firm's order execution systems, procedures, and
should confirm that a firm has adequate systems capacity to permit customers to engage in
day trading activities;
- Day trading may result in large commissions.
Day trading may require an investor to trade his or her account aggressively, and pay
commissions on each trade. The total daily commissions that they pay on trades may add to
losses or significantly reduce earnings;
- Day trading on margin or short selling may result
in losses beyond the initial investment.
When customers day trade with funds borrowed
from the firm or someone else, they can lose more than the funds originally placed at
risk. A decline in the value of the securities that are purchased may require additional
funds be paid to the firm to avoid the forced sale of those securities or other securities
in an investor's account. Short selling as part of a day trading strategy also may lead to
extraordinary losses, because stock may have to be purchased at a very high price in order
to cover a short position.
For more
information contact :
Alden Adkins, NASD Regulation, General Counsel, (202) 728-8332To submit your email comments on the proposal visit http://www.nasdr.com |
Read Bill
Singer's commentary on the NASD Day Trading proposals.
You Can Be Sued Even If The Allegedly Harassed Employee:
suffered no adverse job action, the employer did not know about the harassing conduct, and
the employee did not report the conduct to the employer.
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