Will New Rules Mitigate Risk?
"Every day, more and more Americans are investing in the stock market, and many of them are doing so through the Internet," Levitt said in a statement. "I believe that investors need to remember the investment basics and not allow the ease and speed with which they can trade to lull them either into a false sense of security or encourage them to trade too quickly or too often ... Online investors should remember that it is just as easy, if not more, to lose money through the click of a button as it is to make it."
--Arthur Levitt, SEC Chariman (citation)
Brokerages and financial markets are busy thinking of ways to assuage the risks encountered by novice investors during volitile trading periods.
- Several online brokerage houses including DLJDirect, Schwab, Salomon Smith Barney, Waterhouse Securities are making it harder for customers to buy Internet-related stocks with borrowed funds by assigning higher margin-maintenance requirements to Internet-related stocks. (citation)
- NASDAQ is considering authorizing online trading halts during particularly volitile trading periods. Patrick Cambell, NASDAQ's COO, had to be convinced that his exchange's traditionally hands-off policy might need some revising. Mr. Cambell was convinced after noticing that some stocks were rising quickly only because uninformed individual investors were mistaking their symbols for those of Internet companies. (citation)
- The National Association of Securities Dealers (NASD) is considering
seeking expanded authority for itself to halt trading under similar
circumstances. This NASD
brochure informs investors about the benefits and pitfalls of investing
online.(citation)
- Many financial regulating bodies have suggested that online brokerages implement pop-up windows on their sites to warn investors during hectic trading periods. Brokerages, always looking for ways to speed up and streamline their sites, are not crazy about the slow downs such pop-up windows would cause, not to mention the annoyance of constant warnings.
- Along with the rise of online trading, the SEC is very concerned about the rise in cases of Internet fraud. The SEC has cracked down on fraudulent Internet companies and offering in 66 cases within the past 18 months, 33 of those being filed in the past 6 months. (citation)
- SEC Commissioner Laura Unger recently held a roundtable discussion on online trading with E*Trade, Charles Schwab and Morgan Stanley Dean Witter Inc.'s Discovery Brokerage. Unger will hold two more roundtables in New York and Washington and plans to release a report of her findings later this year. (citation)
