-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-220
TITLE: SECURITIES OPERATIONS: Update on Actions Taken to Address Day
Trading Concerns
DATE: 11/27/2001
-----------------------------------------------------------------
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Testimony. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-02-220
A
Report to Congressional Requesters
November 2001 SECURITIES OPERATIONS Update on Actions Taken to Address Day
Trading Concerns
GAO- 02- 20
November 27, 2001 Congressional Requesters In 1999, day trading 1 began to
receive intense scrutiny from state and federal regulators and the Congress
because of concerns that it posed significant investor protection and market
integrity issues. In particular there was concern that broker- dealers
promoting day trading as a strategy
(day trading firms) sometimes used questionable advertising to attract
customers without fully disclosing or by downplaying the risks involved.
Many were also concerned that traders were losing large amounts of money by
using a day trading strategy.
This letter responds to your February 5, 2001, request that we review the
status of issues addressed in our 2000 report, Securities Operations: Day
Trading Requires Continued Oversight 2 and concerns raised by the Permanent
Subcommittee on Investigations (Permanent Subcommittee), Senate Committee on
Governmental Affairs in its report, Day Trading:
Case Studies and Conclusions (July 27, 2000). Our objectives were to (1)
determine how day traders as a group and day trading firms? operations have
changed since 1999, (2) identify the actions regulators have taken to
address our report recommendations and the Permanent Subcommittee?s concerns
about day trading, and (3) identify any actions day trading firms have taken
in response to concerns raised about day trading. To fulfill our objectives,
we interviewed officials from six of the seven firms we interviewed for our
2000 report, one additional firm, and state and federal regulators to learn
how day trading has changed since 1999. We also collected information on
actions regulators have taken to address
concerns previously raised about day trading. Specifically, we reviewed
examination reports completed by the Securities and Exchange Commission
(SEC) and NASD Regulation, Inc. (NASDR), the regulatory arm of the National
Association of Securities Dealers (NASD), 3 from late 1 Day trading
generally involves a strategy of making multiple purchases and sales of the
same securities throughout the day in an attempt to profit from short- term
price movements via direct access to securities markets. 2 GAO/ GGD- 00- 61,
February 24, 2000.
3 NASD is one of the self- regulatory agencies charged with overseeing the
activities of its member broker- dealers.
1999 to August 2001. We also reviewed various new and amended rules
pertaining to day trading. Finally, we reviewed the Web sites of more than
200 firms identified by SEC, NASD, or GAO as providing day trading services
to determine what types of information are available there.
Results in Brief Since 1999, day traders as a group and day trading firms
have continued to evolve. Financial market regulators and industry officials
told us that day traders are generally more experienced and sophisticated
about securities markets and investing than they were several years ago.
Likewise, day trading firms? operations have evolved, and many have shifted
their primary focus away from retail customers and toward attracting
institutional customers such as hedge funds and money market managers. In
addition, more firms are likely to engage in proprietary trading activities
through professional traders that trade the firms? own capital. Finally,
although the number of day trading firms appears to have remained
constant, several day trading firms have been acquired by other brokerages
and market participants whose customers want the direct access to securities
markets and market information that technology used by day trading firms
provides. Since our 2000 review, SEC and the self- regulatory organizations
(SROs) have taken various actions that address many of the concerns raised
about day trading. First, in 2000 SEC approved several SRO rules relevant to
day trading. Specifically, NASDR adopted rules requiring broker- dealers
that promote a day trading strategy to determine if such a strategy is
appropriate for customers and to provide customers with a risk disclosure
statement. NASDR and the New York Stock Exchange (NYSE) also amended their
margin rules with more restrictive margin requirements for certain day
traders. Second, SEC and the SROs have continued to monitor and examine day
trading firms and their activities to varying degrees. SEC
has continued to conduct ?cause? examinations 4 on day trading firms, while
NASDR includes examinations of day trading firms in its routine brokerdealer
examination cycle. SEC and the SROs also have completed followup
examinations of some of the firms included in SEC?s and NASDR?s initial 1999
sweep of day trading firms and have examined all firms that were newly
identified as day trading firms in 2000. In addition, SEC and NASDR 4 Cause
examinations are conducted when the staff has reason to believe there have
been violations of the federal securities laws and are occasioned by press
reports, complaint
letters, or other indications that something is wrong.
have settled several pending enforcement cases involving day trading firms
and their principals. In addition to the ongoing changes in the industry and
regulatory action, day trading firms have responded to changing market
conditions and regulatory scrutiny by changing their behavior. The most
noticeable changes appear in their advertising and Web site information,
which now generally highlight the risks associated with day trading and the
fact that day trading is not for everyone. Moreover, industry and regulatory
officials
said that the decline in the markets, especially among technology company
stock prices, appears to have driven many unsophisticated day traders out of
the market. Even without these changes in market conditions, the
attention that has been focused on day trading and subsequent changes in
risk disclosure should help deter many unsophisticated traders with no
understanding of the risks involved from being lured into day trading by
prospects of easy profits. Day trading firms? Web sites now tend to focus on
the benefits of using a day trading firm, such as direct market access,
trade execution speed, and low fees and commissions, rather than on
unsubstantiated claims of large profits. Moreover, most of the Web sites we
reviewed also highlighted the risks of day trading or provided risk
disclosures or disclaimers. We also revisited several of the larger day
trading firms and found that many of them no longer actively advertise for
retail customers but instead rely on personal referrals.
We requested comments on a draft of this report from SEC and NASDR. Both
agreed with the report?s findings and conclusions. Their comments are
reprinted in appendixes I and II. We are making no recommendations in this
report.
Background The term ?day trading? has various definitions. In 1999, day
trading was commonly described as a trading strategy that involved making
multiple purchases and sales of the same securities throughout the day in an
attempt to profit from short- term price movements. Since that time, the
definition has evolved. For example, NASDR and NYSE use two definitions of
day trading in the recent amendments to their margin rules. First, NYSE Rule
431( f)( 8)( B)( I) and NASDR Rule 2520( f)( 8)( b) generally define day
trading as ?the purchasing and selling or the selling and purchasing of the
same security in the same day in a margin account.? 5 Second, both NYSE and
NASD define a ?pattern? day trader as a customer who executes four or more
day trades within 5 business days, unless the number of day trades
does not exceed 6 percent of their total trading activity for that period.
Additionally, NASDR?s rule on approval procedures for day trading accounts
defines a day trading strategy as ?an overall trading strategy characterized
by the regular transmission by a customer of intra- day orders to affect
both purchase and sale transactions in the same security or
securities.? In this report, we define day trading as consistently both
buying and selling the same securities intraday via direct access technology
to take advantage of short- term price movements. Day trading firms use
sophisticated order routing and execution systems technology 6 that allows
traders to monitor and access the market on a realtime basis. This
technology allows traders direct access to stock markets through Nasdaq
Level II screens 7 that display real- time best bid (buy) and ask (sell)
quotes for any Nasdaq or over- the- counter security, including quotes
between market makers 8 trading for their own inventories. Day traders also
conduct transactions through electronic communications networks (ECNs),
which allow customers? orders to be displayed to other customers and allow
customers? orders to be paired. 9 As a result of this technology, day
traders have the tools to trade from their own accounts without an
intermediary such as a stock broker and can employ techniques
that were previously available only to market makers and professional
traders. 5 Both rules define day trading as the purchasing and the selling
or the selling and purchasing of the same security on the same day in a
margin account. There are two exceptions to this definition: first, a long
security position held overnight and sold the next day prior to any new
purchase of the same security; and second, a short security position held
overnight and
purchased the next day prior to any new sale of the same security. 6 Order
routing and execution systems allow traders to direct their trades to
specific market makers (see footnote 9) or market centers that subsequently
execute the trade.
7 Subscribers to Nasdaq?s Level II receive displays of all quotes in real
time and see the inside market (bid and asked quotes between dealers trading
for their own inventories) for any given Nasdaq or over- the- counter
bulletin board security and other market data. 8 A market maker is a dealer
that maintains a market in a given security by buying or selling over- the-
counter securities at quoted prices. 9 An ECN is an electronic trading
system that automatically matches buy and sell orders at specified prices.
ECNs register with the SEC as broker- dealers.
Day trading firms register with SEC and become members of one of the SROs,
such as NASD or the Philadelphia Stock Exchange; they are therefore subject
to regulation by SEC and an SRO. As registered brokerdealers,
day trading firms are required to comply with all pertinent federal
securities laws and SRO rules. SROs generally examine every brokerdealer
anywhere from annually to up to every four years, depending on the type of
firm. Day trading firms are also subject to the securities laws and
oversight of the states in which they are registered.
In 1999, state and federal regulators began to identify concerns about
certain day trading firms? activities. In 1999, state regulators examined
and initiated disciplinary action against several day trading firms and
identified several areas of concern. SEC completed an examination sweep of
47 day
trading firms in 1999 and subsequently issued a report. 10 According to
SEC?s report, the examinations did not reveal widespread fraud, but
examiners found indications of serious violations of securities laws related
to net capital, margin, and customer lending. However, most of the
examinations revealed less serious violations and concluded that many firms
needed to take steps to improve their compliance with net capital, short
sale, and supervision rules. NASDR also initiated a series of focused
examinations of day- trading firms that focused on the firms? advertising
and risk disclosures, among other areas. SEC and NASDR also initiated
several enforcement actions against day trading firms and individuals in
early 2000.
In our 2000 report, we found that day trading among less- experienced
traders was an evolving segment of the securities industry. Day traders
represented less than one- tenth of 1 percent, or about 1 out of 1,000, of
all individuals who bought or sold securities. However, day trading was
estimated by some to account for about 15 percent of Nasdaq?s trading
volume. Although no firm estimates exist for the number of active day
traders, many regulatory and industry officials we spoke with generally
thought 5,000 was a reasonable estimate and believed the number was stable
or had gone down slightly. However, the number of open accounts at
day trading firms is likely much higher. 11 10 Report of Examination of Day
Trading Broker- Dealers (Feb. 25, 2000). 11 The Permanent Subcommittee
determined the number of day trading accounts to be over 13, 000 in 1999.
We also noted in our 2000 report that before 1997, day traders submitted
most of their orders through the Small Order Execution System (SOES). 12 We
concluded that the effects of day trading in an environment that
depends less on SOES and more on ECNs are uncertain. Because of these
findings and our work in this area, we recommended that after decimal
trading is implemented, SEC should evaluate the implications of day traders?
growing use of ECNs on the integrity of the markets. We also recommended
that SEC do an additional cycle of targeted examinations of day trading
firms to ensure that the firms take the necessary corrective
actions proposed in response to previous examination findings. Concerns
about day trading culminated in hearings before the Permanent Subcommittee
on February 24 and 25, 2000, 13 and the ultimate issuance of a report by the
Permanent Subcommittee in July 2000. 14 The Permanent Subcommittee expressed
its concerns about certain industry practices at
the hearing and made several recommendations in its subsequent report. In
general, the recommendations suggested changes to NASDR?s disclosure rules
and margin rule amendments and summarized comments Permanent Subcommittee
Members had submitted to SEC when those rules were published for comment in
the Federal Register. In addition, the Permanent
Subcommittee recommended that NASDR prohibit firms from arranging loans
between customers to meet margin requirements and that firms be required to
develop policies to ensure that individual day traders acting as investment
advisors are properly registered. Day Trading Firms
Since 1999, day traders as a group and firms that offer day trading Have
Continued to capability have continued to evolve. Most regulators and
industry officials we spoke with said that day traders are generally more
experienced and
Evolve that fewer customers are quitting their jobs to become day traders.
We also found that many day trading firms now market to institutional
customers,
12 SOES is an execution system that allows small orders placed through it to
be automatically executed against Nasdaq market makers at the best bid (buy)
or ask (sell) prices displayed on the Nasdaq system. It allows customers to
access and trade with market makers without having to call them on the
phone.
13 Day Trading: Everyone Gambles but the House, Hearings before the
Permanent Subcommittee on Investigations of the Committee on Governmental
Affairs, U. S. Senate, Feb. 24 and 25, 2000. 14 Day Trading: Case Studies
and Conclusions, Report by the Permanent Subcommittee on Investigations
(July 27, 2000).
such as hedge funds 15 and money market managers, rather than focusing on
retail customers. In addition, more day trading firms are likely to engage
in proprietary trading through professional traders who trade the firms?
capital rather than their own and earn a percent of the profits. Finally, we
found that traditional and on- line brokers and other entities that want to
offer their customers direct access to securities markets are acquiring day
trading firms. A concern raised in 1999 was that day trading firms were
marketing to inexperienced traders who did not fully understand the risks of
day trading and therefore lost substantial amounts of money. Some industry
and regulatory officials said the combination of intense regulatory scrutiny
and adverse market conditions in late 2000 and into 2001 have driven many
unsophisticated traders out of day trading. Traders currently engaged in day
trading are more likely to be experienced and to have a greater knowledge of
the risks involved than traders in 1999. Industry officials said that many
traders gained their experience by day trading for several years,
while others were professional traders who became day traders. During our
first review, regulatory and government officials were particularly
concerned that day trading firms were attracting customers who were ill-
suited for day trading because they lacked either the capital or the
knowledge to engage in such a risky activity. Since 1999, day trading firms
have begun to focus on institutional as well as retail customers, including
hedge funds and small investment management companies. According to press
reports, All- Tech Direct, Inc., a day trading firm,
announced in August 2001 that it planned to get out of the retail business
completely and was severing its relationship with all of its retail
branches. Overall, institutional investors are increasingly interested in
the kind of high- speed order execution that day traders get from direct
access systems and the relatively low fees day traders pay to execute
trades.
In addition, some day trading firms that focused solely on retail customers
in 1999 have since hired professional traders who trade the firms? capital
(proprietary traders). For some, this move reflects a departure from their
retail customer focus. A few officials said many of their retail customers
15 Although there is no statutory definition of a hedge fund, it is
generally a private and unregistered investment vehicle that often engages
in active trading of investment pools in various types of securities and
commodities. Hedge funds are largely unregulated.
started as proprietary traders and learned to trade by using the firm?s
capital rather than their own. Another change involves the growth in the
number of day trading firms being acquired by other brokerages and in market
participants that want the direct access technology. For example, since 1999
on- line brokers Charles Schwab and Ameritrade have purchased CyberCorp.
(former CyberTrader) and Tradecast, respectively. Likewise, in August 2001
T. D. Waterhouse Group Inc. announced plans to purchase one of the smaller
day trading firms, R. J. Thompson Holdings. In addition, Instinet, an ECN,
purchased ProTrader as a way to offer direct access technology to its
customers. 16 Moreover, financial conglomerates are also moving toward
offering fully integrated services, which include all aspects of a
securities purchase, from direct access to securities markets to clearing
capabilities.
In September 2000, Goldman Sachs announced its planned acquisition of Spear
Leeds & Kellogg, which offers such fully integrated services. Other firms
with fully integrated capabilities include on- line brokerages such as
Ameritrade and Datek, as well as an ECN, Instinet.
Some regulatory and industry officials said that they expect traditional and
discount brokerages to continue to acquire day trading firms, as these
brokerages face increased pressure to provide direct market access to their
more active traders (estimated at between 50,000 and 75,000). Some analysts
also said that the growing trend toward direct access has been driven not
only by competitive pressure but also by SEC?s new disclosure rules on order
handling and trade execution, which require ECNs, market makers, and
specialists to report execution data on order sizes, speed, and unfilled
orders. In addition, by the end of November 2001 brokers are required to
disclose the identity of the market centers to which they route a
significant percentage of their orders and the nature of the broker?s
relationships with these market centers, including any payment for order
flow. 17 By offering customers direct access to markets, the customer rather
than the broker determines where trades are executed.
16 According to an industry official, Instinet required ProTrader to shed
its proprietary trading business to focus on the agency opportunities- both
retail and institutional. 17 Payment for order flow is a method of
transferring some of the trading profits from market making to the brokers
that route customer orders to specialists for execution (firms usually pay a
penny or more per share in return for the order flow).
Regulators Have Taken Since our 2000 review, SEC and the SROs have taken
various actions Actions to Address involving day trading activities.
Specifically, NASDR has adopted rules that require firms to provide
customers with a risk disclosure statement and to Some Concerns About
approve the customer?s account for day trading. In addition, NASDR and Day
Trading Firms
NYSE have amended their margin rules for day traders to impose more
restrictive requirements for pattern day traders. NASDR?s margin rule
amendments became effective on September 28, 2001, and NYSE?s became
effective on August 27, 2001. SEC and the SROs have also continued to
monitor and examine day trading firms and their activities to ensure
compliance with securities laws. Finally, SEC and NASDR have settled several
pending enforcement cases involving day trading securities firms and their
principals.
SROs Have Finalized In 2000 and 2001, the SROs adopted day trading rules
related to improved
Disclosure Rules That risk disclosure and stricter margin requirements. On
July 10, 2000, SEC
Promote Improved Risk approved NASDR Rule 2360, Approval Procedures for Day-
Trading
Accounts, which requires firms that promote a day trading strategy 18 to
Disclosure either 1) approve the customer?s account for a day trading
strategy or 2) obtain from the customer a written agreement that the
customer does not
intend to use the account for day trading purposes. SEC also approved NASDR
Rule 2361, Day- Trading Risk Disclosure Statement, which requires firms that
promote a day trading strategy to furnish a risk- disclosure statement that
discusses the unique risks of day trading to customers prior to opening an
account. 19 The new rules became effective on October 16, 2000.
NASDR Rule 2361 provides a disclosure statement that, among other things,
warns investors that day trading can be risky and is generally not
appropriate for someone with limited resources, little investment or trading
experience, or tolerance for risk (see table 1). The statement 18 NASDR Rule
2360 defines a day trading strategy to mean a trading strategy characterized
by the regular transmission by a customer of intraday orders to effect both
purchase and sale transactions in the same security.
19 In lieu of the disclosure statement contained in Rule 2361, a NASD member
may provide an alternative disclosure statement that is substantially
similar to the one provided by NASDR as long as the alternative disclosure
statement is filed with NASDR?s Advertising Department for review and
approval 10 days prior to using the statement.
further maintains that evidence suggests that an investment of less than
$50,000 significantly affects the ability of a day trader to make a profit.
Table 1: Final Rule 2361, Day Trading Risk Disclosure Statement Day Trading
Risk Disclosure Statement as Adopted by NASDR Day trading can be extremely
risky. Day trading generally is not appropriate for someone of limited
resources and limited investment or trading experience and low risk
tolerance. You should be prepared to lose all of the funds that you use for
day trading. In particular, you should not fund 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 to meet your living expenses. Further, certain evidence indicates
that an investment of less than $50,000 will significantly impair the
ability of a day trader to make a profit. Of course, an investment of
$50,000 or more will in no way guarantee success. Be cautious of claims of
large profits from day trading. You should 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, you must compete
with professional, licensed traders employed by securities firms. You should
have appropriate experience before engaging in day trading.
Day trading requires knowledge of a firm?s operations. You should be
familiar with a securities firm?s business practices, including the
operation of the firm?s order execution systems and procedures. Under
certain market conditions, you may find it difficult or impossible to
liquidate a position quickly at a reasonable price. This can occur, for
example, when the market for a stock suddenly drops, or if trading is halted
due to recent news events or unusual trading activity. The more volatile a
stock is, the greater the likelihood that problems may be encountered in
executing a transaction. In addition to normal market risks, you may
experience losses due to system failures.
Day trading will generate substantial commissions, even if the per trade
cost is low. Day trading involves aggressive trading, and generally you will
pay commissions on each trade. The total daily commissions that you pay on
your trades will add to your losses or significantly reduce your earnings.
For instance, assuming that a trade costs $16 and an average of 29
transactions are conducted per day, an investor would need to generate an
annual profit of $111,360 just to cover commission expenses. Day trading on
margin or short selling may result in losses beyond your initial investment.
When you day trade with funds borrowed from a firm or someone else, you can
lose more than the funds you originally placed at risk. A decline in the
value of the securities that are purchased may require you to provide
additional funds to the firm to avoid the forced sale of those securities or
other securities in your account. Short selling as part of your day- trading
strategy also may lead to extraordinary losses, because you may have to
purchase a stock at a very high price in order to cover a short position.
Potential Registration Requirements. Persons providing investment advice for
others or managing securities accounts for others may need to register as
either an ?Investment Advisor? under the Investment Advisors Act of 1940 or
as a ?Broker? or ?Dealer? under the Securities Exchange Act of 1934. Such
activities may also trigger state registration requirements.
Note: Italicized text generally represents changes that respond to issues
raised by the Permanent Subcommittee. Source: NASDR Notice to Members 00-
62, September 2000.
The disclosure statement contained in NASDR Rule 2361 incorporated many of
the recommendations the Permanent Subcommittee Members made in a comment
letter to SEC and subsequently summarized in its July 27, 2000, report. 20
The italicized text in table 1 generally represents the
Permanent Subcommittee?s recommended changes that NASDR adopted. Although
many of the Permanent Subcommittee?s recommendations were incorporated into
the final disclosure statement, NASDR did not adopt all of them. For
example, NASDR did not directly adopt the Permanent Subcommittee?s
recommendations that firms presume that customers who
open accounts with less than $50,000 are generally inappropriate for day
trading 21 or that firms be required to prepare and maintain records setting
forth the reasons why customers with less than $50,000 are considered
appropriate for day trading. Instead, NASDR incorporated the Permanent
Committee?s concern about the significance of the $50, 000 threshold into
the disclosure statement. NASDR decided not to directly incorporate these
recommendations for several reasons. First, it believed that a $50,000
threshold might make sense for some investors but could be too high or too
low for others. Second, NASDR was concerned that such a requirement
could encourage investors to inflate the value of their assets. Lastly,
NASDR?s rule (as proposed) already required a firm to document the basis on
which it approved an account for day trading.
NASDR and NYSE Amended In February 2001, SEC approved substantially similar
amendments to
Their Margin Requirements NASDR and NYSE rules proposing more restrictive
margin requirements to Include More Restrictive
for day traders. Prior to the adoption of the NASDR and NYSE amendments,
margin requirements were calculated on the basis of a Requirements for Day
customer?s open positions at the end of the trading day. 22 A day trader
often Traders
has no open positions at the end of the day on which a margin calculation
can be based. However, the day trader and the firm are at financial risk
throughout the day if credit is extended. To address that risk, the NASDR
and NYSE rule amendments require ?pattern day traders? to demonstrate
20 During the period that the proposed rule was published in the Federal
Register for comment, Permanent Subcommittee Members submitted a comment
letter with suggested modifications to the rule and summarized those
comments in the July 2000 report.
21 However, the firm could overcome this presumption with other factors it
believed would outweigh the inadequate risk capital. 22 NASDR Rule 2520 and
NYSE Rule 431 are the margin provisions for the NASD and NYSE, respectively.
that they have the ability to meet a special maintenance margin requirement
for at least their largest open position during the day. 23 Customers who
meet the definition of pattern day trader under the rules must generally
deposit 25 percent of the largest open position into their accounts. Both
rule amendments require customers who meet the definition of a pattern day
trader to have minimum equity of $25,000 in their accounts. Funds deposited
into these accounts to meet the minimum equity requirement must remain there
for a minimum of 2 business days following
the close of business on the day a deposit was required. In addition, the
rule amendments permit day trading buying power of up to four times excess
margin 24 and impose a day trading margin call on customers who exceed their
day trading buying power. In addition, until the margin call is met, day
trading accounts are restricted to day trading buying power of two times
excess margin, calculated on the basis of the cost of all day trades made
during the day. If the margin call is not met by the 5th business business
day, day traders are limited to trading on a cashavailable basis for 90 days
or until the call is met. Funds deposited in an account to meet a day
trading margin call must also remain in the account for 2 business days. The
rule amendments also prohibit cross- guarantees 25 to meet day trading
minimum equity requirements or day trading margin calls.
These more stringent margin requirements respond to concerns raised about
the risks day trading can pose to traders, firms, and securities markets in
general. The amendments as finalized do not fully incorporate the Permanent
Subcommittee?s recommendation that the minimum equity requirement be raised
from $2, 000 to $50,000. Instead, SEC approved a
$25,000 minimum. NASDR believes that a $25,000 minimum equity requirement
will provide ?protection against continued losses in day trading accounts,
while refraining from excessive restrictions on day 23 The NASDR Rule
further requires a firm that knows or has reason to believe that a customer
is a pattern day trader to designate the customer as such immediately. 24
Excess margin is the amount of equity in a customer?s margin account in
excess of the
required maintenance margin requirement. 25 Cross- guarantees consolidate
accounts and permit maintenance margin based on the net positions of both
accounts.
traders with limited capital.? Moreover, both NASDR and NYSE said that
broker- dealers have the option of increasing the minimum requirement based
on their own policies and procedures. The Permanent Subcommittee also
recommended that the margin ratio not be increased to four times excess
equity from its previous level of two times. NASDR and NYSE disagreed with
this proposed change, because allowing day traders to trade at a 4: 1 ratio
brings day trading accounts into parity with ordinary NASDR and NYSE
maintenance margin account requirements, which are 25 percent, or 4: 1.
Moreover, officials said the change was appropriate when considered in
conjunction with the other
changes to the margin rules, such as the increased minimum equity
requirement, the immediate consequences imposed if day trading buying power
is exceeded, and the 2- day holding period for funds used to meet day
trading margin requirements.
The Permanent Subcommittee also recommended that NASDR propose a rule
prohibiting firms from arranging loans between customers to meet margin
calls. NASDR is continuing to review this issue but has not proposed rules
that directly address firms? involvement in arranging such loans. However,
industry officials believe that the new margin rules indirectly address this
issue because the amendments will make such
lending arrangements less attractive to lenders. For example, as mentioned
previously, funds deposited to meet a margin call must be left in a trader?s
account for two full business days following the close of business on any
day when a deposit is required, substantially increasing the risks to the
lender. Previously, funds could be held in an account overnight to meet the
margin call requirement. SEC and the SROs Continue
Consistent with our 2000 report recommendation, SEC has continued to to Find
Violations at Day examine the activities of day trading firms. Specifically,
since SEC?s initial
Trading Firms sweep of 47 day trading firms from October 1998 to September
1999 and subsequent report, 26 SEC, NASDR, and Philadelphia Stock Exchange
staff
have conducted examinations of all the 133 day trading firms that were
identified in 2000. In addition, SEC and the SROs have done follow- up
examinations to determine whether the previous violations have been
26 Special Study: Report of Examinations of Day- Trading Broker- Dealers
(Feb. 25, 2000). Audi Report or? t s
corrected. 27 Moreover, NASDR officials said they prepared a special
examination module for these follow- up examinations that focused on
identified problem areas. According to SEC, in 2001 and 2002, SRO staff will
continue to conduct routine examinations of existing day trading firms and
of newly registered firms to determine compliance with applicable rules. For
example, NASDR officials said that they are no longer
prioritizing day trading firms for review; instead, these firms are now
examined during the routine broker- dealer examination cycle or when they
first register. As of August 2001, NASDR had completed about 62 such
examinations. In addition, SEC said that it would continue to initiate cause
examinations when appropriate. From late 1999 to early 2001, almost half of
the day trading firm examinations completed by SEC were cause examinations.
According to SEC and NASDR officials, day trading firms? overall compliance
with rules has improved since the 1999 sweep. Officials said that while the
examinations revealed violations of margin rules, short sale rule
violations, misleading advertisements, and net capital deficiencies,
these types of violations were occurring less frequently. SEC also
identified violations of SRO and SEC rules related to supervision,
maintenance of books and records, and the net capital calculation. SEC and
NASDR officials said that net capital and supervision violations are not
uncommon among broker- dealers in general.
We reviewed 42 SEC and 62 NASDR examination reports completed between the
end of the 1999 sweep and August 2001 that looked at brokerdealers and their
branches offering day trading as a strategy. Overall, written supervisory
procedure failures 28 were the most frequent violation,
27 SEC?s Report in Response to Congressmen Dingell, Markey, and Towns?
Letter of February 5, 2001 Regarding Efforts to Address Questionable
Practices at Day- Trading Firms (June 22, 2001). 28 NASDR rules require each
broker- dealer to establish, maintain, and enforce written procedures that
enable it to supervise its registered representatives and associated persons
and to ensure that the member complies with applicable securities laws.
followed by net capital rule 29 miscalculations. Table 2 shows the number of
examinations that included violations in each area. 30 However, many of the
violations cited in the examination reports were violations that are often
cited at all types of broker- dealers and were not directly related to the
firm?s day trading activity, which in some cases was a small part of the
firm?s overall operation. Common supervisory procedure violations involved
failure to have adequate written procedures that reflect the types of
business in which the firm engages. For example, some broker- dealers had
added day trading to their offered services but had not changed their
written supervisory procedures to address this new activity. Other firms
were cited for failure to follow their internal supervisory procedures. Many
of the net capital rule violations involved calculation and reporting
errors.
Table 2: SEC and NASDR Examinations With Various Violations Number of SEC
Number of NASDR examinations with
examinations with Violations
violations violations
Written Supervisory Procedures 25 36 Net Capital 21 25 Short Sale Rules 7 10
Advertising 11 5 Customer Lending and Margin 8 1 Rules Other 31 50
Total Examinations reviewed 42 62
Note: Columns do not add up to the total number of firms examined, because
many examinations had multiple violations and others had none.
Sources: SEC and NASDR broker- dealer and branch examination reports.
29 The net capital rule is a liquidity standard that requires broker-
dealers to (1) maintain a minimum level of liquid capital sufficient to
promptly satisfy all of its obligations to customers and other market
participants and (2) provide a cushion of liquid assets to cover potential
market, credit, and other risks. 30 Some firms were examined more than once
during the period reviewed.
Compared with the written supervisory procedure and net capital rule
violations, fewer examinations had short sale, 31 advertising, and margin
and customer- lending rule 32 violations. The short sale rule violations
included failing to properly indicate trades as ?short? (sale) or ?long?
(purchase), effecting short sales below the price at which the last sale was
reported or on a zero- minus tick, 33 and improperly marking short orders as
long without first making an affirmative determination that the securities
were in the trader?s account or ready to be delivered prior to settlement.
Although examiners continued to find some advertising violations involving
omissions of fact and misstatements, many of the violations involved failure
to properly maintain advertising files and other documentation requirements.
For example, firms were cited for failure to document advertising approvals
and make required submissions to NASDR. The customer lending and margin
violations involved failure to secure additional funds to cover margin calls
and allowing traders to trade when the Regulation T 34 margin requirement
had not been met. Numerous
other deficiencies were also cited, including failure to inform customers
who access SelectNet 35 that NASD monitors trading activity and that the
customers can be subject to prosecution for violations of securities laws,
improper registration issues such as failure to properly register branches,
and improper registration of traders. 31 A short sale refers to any sale of
a security that the seller does not own or any sale that is
consummated by the delivery of a security borrowed by, or for the account
of, the seller. 32 Customers that trade in margin accounts are subject to
the initial margin and maintenance margin requirements, among other
requirements. Similarly, customers may lend other
customers money to meet margin requirements, but broker- dealers and
associated persons are restricted in their ability to lend to customers. 33
A zero- minus tick refers to selling at the same price as the preceding
price that is less than the most immediate different preceding price. 34
Regulation T is a Federal Reserve rule that specifies initial margin
requirements. For example, it requires an initial margin of 50 percent for
new purchases of equities in margin accounts.
35 SelectNet is an electronic, screen- based order routing system that
allows market makers and participants to negotiate securities transactions
in Nasdaq securities through computer communications rather than over the
telephone.
Of the SEC examinations reviewed, 34 resulted in deficiency or violation
letters, 36 3 indicated that no violations had been found, and 7 resulted in
a referral to an SRO or to SEC?s Division of Enforcement. Of the NASDR
examinations we reviewed, 39 resulted in a letter of caution, 37 5 resulted
in a compliance conference, 38 12 were filed without action, and at least 2
resulted in formal complaints or referrals to SEC or NASDR Enforcement.
SEC and NASD Have Settled Since the enforcement actions announced in
February 2000, NASDR and
Disciplinary Actions Against SEC have settled several disciplinary actions
against day trading firms and
Day Trading Firms and their principals, including fines, civil money
penalties, censures, and the
Principals expulsion of one firm from the business. SEC brought several
enforcement
actions related to day trading in June 2001. First, SEC instituted and
settled proceedings against JPR Capital Corporation and several of the
firm?s current and former executives. SEC found that the firm had violated
federal margin lending rules, among other things. All of the respondents to
the proceedings consented to SEC?s order without admitting or denying the
allegations, agreed to pay civil money penalties, and consented to other
relief. The firm was censured and ordered to pay a civil penalty of $55,000
to ?cease and desist? from committing or causing any violations of specified
laws and rules and to comply with initiatives designed to improve
its own compliance department. Second, SEC settled its previously instituted
proceeding against All- Tech Direct, Inc. and certain of its employees for
extending loans to customers in excess of limits allowed under federal
margin rules. SEC censured All- Tech Direct and ordered the firm to cease
and desist from committing or causing any violations of the
federal margin lending rules, to pay a $225,000 civil penalty, and to retain
an independent consultant selected by SEC to review and recommend
improvements to All- Tech Direct?s margin lending practices.
36 When examiners find compliance failures or internal control weaknesses,
SEC usually provides the broker- dealer with a letter identifying the
problems and requires the brokerdealer to take remedial steps. Deficiency
letters generally require a written response. 37 A letter of caution is sent
to the firm following an examination citing all violations found during the
examination and generally requiring a response from the firm that describes
the firms? plans to correct and prevent future violations. 38 A compliance
conference is a meeting NASDR examiners hold with firm management to address
violations and the firm?s plan to correct the violations and ensure future
compliance.
As shown in table 3, NASDR also announced enforcement actions in June 2001
against six firms and several individuals that addressed violations of
federal securities laws and NASDR rule violations in the following areas:
advertising, registration, improper loans to customers, improper sharing of
commissions, short sale rules, trade reporting, and deficient supervisory
procedures. Without admitting or denying the allegations, the firms and
individuals agreed to the sanctions, which included censures, the expulsion
of one firm, suspensions, and fines against the firms and individuals
ranging from $5,000 to $250,000.
Table 3: Summary of Violations of Federal Securities Laws and NASDR Rules
Resulting in Disciplinary Actions (June 2001) Loans to
Sharing of Short
Trade Supervisory Firm and others Advertising Registration customers
commissions sale reporting procedures Other
Landmark Securities X XXXXX Corporation and Individual Momentum Securities,
LLC X X X X X
CyBerBroker, Inc. and X Individual Cornerstone Securities X XXXX
Corporation (now ProTrader) and Individual
Summit Trading X X X X X All- Tech Direct, Inc. and
X X X Individual Sources: NASD Regulation Settles Five Disciplinary Actions
Involving Day- Trading (June 7, 2001) and NASDR Regulation Fines All- Tech,
Houtkin, and Other Execs $380,000 for Day Trading and Advertising
Violations; Suspends Individuals (June 13, 2001).
According to NASDR officials, these settlements resulted from violations
that occurred in prior years. While any violation is a serious issue,
regulatory officials said that many of these issues have been addressed and
that compliance among day trading firms is generally improving. For example,
NASDR officials said that they are seeing far fewer misleading
advertisements than in 1999.
In August 2001, All- Tech Direct also lost an arbitration proceeding
involving allegations of misleading advertising. Four traders filed
arbitration proceedings against All- Tech Direct for losses incurred in
their day trading accounts. Although firm officials said that the traders
lost money when
they held open positions overnight- a practice day trading firms usually do
not recommend- the arbitration panel ruled in favor of the plaintiffs and
awarded them a total of over $456,000. All- Tech Direct officials said they
plan to appeal the ruling. As mentioned previously, All- Tech Direct has
announced plans to sever its relationship with all of its retail branches.
In October 2001, All- Tech Direct filed the necessary paperwork to withdraw
its registration as a broker- dealer.
Day Trading Firms In addition to the ongoing changes in day trading and in
regulatory Have Also Taken Steps
oversight of the activity, many day trading firms have responded to changing
market conditions and regulatory scrutiny. According to some to Address
Concerns
industry and regulatory officials, day trading firms are generally viewed as
About Day Trading more knowledgeable and sophisticated in terms of
regulatory compliance and management than they were in 1999. We found that
most Web sites of day trading firms prominently highlighted the risks
associated with day
trading or provided easy- to- access risk disclosures or disclaimers. In
addition, the sites focused on the speed of trade executions and lower fees
rather than on profits. We interviewed officials from seven day trading
firms and found that many of these firms no longer actively advertise for
retail customers, relying instead on personal referrals. However, other day
trading firms continue to advertise, and many allow customers to open an
account online via their Web site. Day trading firms have adjusted the way
they operate in response to changing market conditions and regulatory
scrutiny. Firm management is generally viewed as more seasoned and
sophisticated than it was in 1999.
Industry officials said that in general most firms have matured and provide
more vigorous oversight than in the past. In addition to the downturn in the
securities markets, particularly in the technology sector, day traders and
the firms in which they trade have had to adjust to certain market changes.
The first of these was decimalization, which resulted in smaller spreads
between bid and ask prices. Some industry officials said that the
change has made it more difficult for day traders to make profits. As a
result, these officials said that they have advised their traders to trade
less frequently and in smaller lot sizes. The second change, the movement
to SuperSoes 39 and ultimately SuperMontage, 40 is also expected to result
in changes to how day traders operate. However, SuperMontage is not expected
to be fully implemented until 2002. Given these ongoing changes in markets,
SEC has not evaluated the growing use of ECNs by day traders
on the integrity of the markets. Regulators and industry officials also said
that firms now have more sophisticated monitoring systems, an area of
concern identified by regulators in 1999. The firms we visited all had
systems that allowed them to monitor the activity of each of their traders
(retail and proprietary). In addition, many had set preestablished loss
limits for traders. For example,
one firm halted trading for customers who lost 30 percent of their equity in
a single day. Further, some had systems that allowed them to prevent short
sale violations by keeping traders from shorting ineligible stocks. These
firms also had compliance departments that were responsible for monitoring
the activities of the traders, and some provided regular reports to traders
that detailed each trader?s daily activity and positions.
Consistent with the findings of SEC and the SROs, we found that the Web
sites of firms identified as offering day trading services provided
prominent, easy- to- find risk disclosures or disclaimers about day trading.
Specifically, 122 of 133 or about 92 percent of the Web sites we were able
to access between July and November 2000 had risk disclosures or
disclaimers. 41 Many of the firms (and branches) used the NASDR risk
disclosure statement or some similar variation. In addition, some provided
links to SEC and NASDR Web sites for additional information about the risks
of day trading. Rather than claims of easy profitability, many of the sites
now focus on trade execution speed and low fees and commissions.
Of the 125 firms accepting customers, some 57 firms and their branches
allowed customers to file applications online, while 67 required that
39 SuperSoes (Super Small Order Execution System) is the revised automatic
order execution system for Nasdaq. 40 SuperMontage will be Nasdaq?s new
order display window. It will integrate SuperSoes and SelectNet into a
single ?pipeline? for routing of orders and executions. 41 We were not able
to find obvious risk disclosures or disclaimers for the remaining 11 Web
sites (8 percent). However, because we were not able to access all parts of
every Web site, our inability to find disclosures or disclaimers may not
indicate that they were not provided.
account applications be faxed or mailed. 42 Some 40 offered training
opportunities or links to other providers, and 20 had employment
opportunities for traders. Conclusions Since 1999, day trading has continued
to evolve. In general, today?s day traders appear to be more experienced and
knowledgeable about securities
markets than many day traders in the late 1990s. Likewise, many day trading
firms have begun to focus on institutional traders as well as retail
customers, and more firms are likely to engage in proprietary trading.
Finally, other market participants are seeking the direct access technology
offered by day trading firms in order to be able to offer fully integrated
services. Regulators have taken various actions in response to concerns
raised about
day trading. Implementation of disclosure rules and amendments to margin
rules have directly or indirectly addressed many of the concerns raised by
the Permanent Subcommittee. Moreover, SEC and the SROs have
continued to scrutinize the activities of day trading firms since our 2000
report. We recommended that SEC conduct another sweep of day trading firms,
given their growing portion of Nasdaq trading volume and the fact that day
trading is an evolving part of the industry. SEC addressed this
recommendation through follow- up examinations of the firms included in
the previous day trading sweep and ongoing examinations of day trading
firms. The SROs have performed and plan to continue to perform routine
examinations of broker- dealers offering day trading as a strategy.
Moreover, SEC plans to continue to conduct cause examinations as needed to
maintain a certain degree of scrutiny of these firms? activities. Given the
recent move to decimals and ongoing changes in the securities markets, SEC
has not yet formally evaluated day trading?s effect on markets but officials
generally believe that many of the initial problems surrounding these firms
have been addressed.
Finally, the firms themselves have adjusted their behavior in response to
market changes and regulatory scrutiny. The most noticeable changes appear
in their advertising and Web site information, which in many cases now
generally highlight the risks associated with day trading and the fact that
day trading is not for everyone. Changes in market conditions appear 42 We
were unable to access the ?account opening? screen of the remaining firm and
therefore, we could not determine its account opening process.
to have driven many unsophisticated traders out of day trading, and
increased disclosure about risks and continued regulatory oversight should
help deter such traders from being lured into day trading by prospects of
easy profits when market conditions improve.
Agency Comments and We requested comments on a draft of this report from the
Chairman, SEC, Our Evaluation
and the President, NASDR. The Director, Office of Compliance Inspections and
Examinations, SEC, and the President, NASDR, responded in writing and agreed
with the report?s findings and conclusions. We also received technical
comments and suggestions from SEC and NASDR that have been incorporated
where appropriate.
Scope and To determine how day traders and day trading firms? operations
have Methodology changed since 1999, we collected data from day trading
firms, SEC,
NASDR, and other relevant parties. To determine what types of changes have
occurred in day trading, we reviewed available research on the subject and
interviewed state and federal regulators, as well as several knowledgeable
industry officials from seven of the larger day trading firms (including six
of the seven we had interviewed previously). We compared these responses
with the information we obtained in our 2000 report. Specifically, we
obtained insights from regulatory and industry officials on overall changes
in day trading and in the number of day traders. We discussed changes in the
markets, such as decimalization, and how the
move to decimals has impacted day traders. We also discussed common trends
among day traders and day trading firms. In addition, we collected
information on changes specific to individual firm operations. Finally, we
also discussed the concerns raised and recommendations made by the Permanent
Subcommittee and GAO in the respective 2000 reports.
To identify the actions regulators have taken to address the Permanent
Subcommittee?s concerns about day trading and our report recommendations, we
met with officials from SEC and NASDR to discuss their actions involving day
trading oversight. We also reviewed 104 examination reports that had been
completed since 1999. We determined the frequency of the violations and the
actions taken by SEC and NASDR in response to those violations. We spoke
with a state regulatory official from
Massachusetts and an official of the North American Securities
Administrators Association about day trading and state regulatory oversight
activities. Finally, we reviewed newly implemented or amended
rules affecting day trading to determine whether they addressed the
Permanent Subcommittee?s recommendations.
To identify any actions taken by day trading firms in response to concerns
raised about day trading, we interviewed officials from six of the seven day
trading firms we identified in our 2000 report and from one additional firm
about the initiatives the firms were taking pertaining to issues raised by
the regulators and Congress. 43 These issues included advertising, risk
disclosure, margin issues, and determinations of appropriateness. We also
discussed how the firms? operations had changed over the previous 2 years.
In addition, we reviewed the Web sites of over 200 firms that we identified
as day trading firms (some were actually branches of other firms). We
reviewed the sites and obtained information on the account opening process,
training offers, proprietary trading opportunities, and risk
disclosures, among other things. We conducted our work in Jersey City and
Montvale, NJ; New York, NY; Austin and Houston, TX; and Washington, D. C.,
between April and November 2001 in accordance with generally accepted
government auditing standards.
As agreed with your offices, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days from
its issuance date. At that time, we will send copies of this report to the
Chairman and
Ranking Minority Member of the Senate Committee on Banking, Housing and
Urban Affairs; the Chairmen and Ranking Minority Members of the Senate
Committee on Governmental Affairs and Permanent Subcommittee on
Investigations; Chairmen of the House Committee on Financial Services and
its Subcommittee on Capital Markets, Insurance and Government Sponsored
Enterprises; Chairmen of the House Energy and Commerce
Committee and its Subcommittees on Commerce, Trade and Consumer Protection
and on Telecommunications and the Internet; and other congressional
committees. We will also send copies to the Chairman of SEC, the Presidents
of NASDR and NYSE. Copies will also be made available to others upon
request. 43 The seventh firm had not solicited for new customers in over 5
years.
If you or your staff have any questions regarding this report, please
contact Orice M. Williams or me at (202) 512- 8678. Key contributors to this
report were Toayoa Aldridge, Robert F. Pollard, and Sindy Udell.
Richard J. Hillman Director, Financial Markets
and Community Investment
List of Requesters The Honorable John D. Dingell Ranking Minority Member
Committee on Energy and Commerce House of Representatives
The Honorable Edolphus Towns Ranking Minority Member Subcommittee on
Commerce,
Trade and Consumer Protection Committee on Energy and Commerce House of
Representatives
The Honorable Edward J. Markey Ranking Minority Member Subcommittee on
Telecommunications
and the Internet Committee on Energy and Commerce House of Representatives
The Honorable John J. LaFalce Ranking Minority Member Committee on Financial
Services House of Representatives
The Honorable Paul E. Kanjorski Ranking Minority Member Subcommittee on
Capital Markets, Insurance and
Government Sponsored Enterprises Committee on Financial Services House of
Representatives
Appendi xes Comments From the Securities and Exchange
Appendi x I Commission
Appendi x II
Comments From the NASD Regulation, Inc. (250033) Lett er
GAO?s Mission The General Accounting Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance to
help Congress make informed oversight, policy, and funding decisions. GAO?s
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of The fastest and easiest way to obtain copies of GAO
documents is through the Internet. GAO?s Web site (www. gao. gov) contains
abstracts and full- text files of GAO Reports and current reports and
testimony and an expanding archive of older products. The Testimony Web site
features a search engine to help you locate documents using key words and
phrases. You can print these documents in their entirety, including charts
and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as ?Today?s Reports,? on its Web
site daily. The list contains links to the full- text document files. To
have GAO E- mail this list to you every afternoon, go to our home page and
complete the easy- to- use electronic order form found under ?To Order GAO
Products.?
Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out to
the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:
U. S. General Accounting Office P. O. Box 37050 Washington, D. C. 20013
To order by Phone: Voice: (202) 512- 6000 TDD: (301) 413- 0006 Fax: (202)
258- 4066
Visit GAO?s Document GAO Building Distribution Center Room 1100, 700 4th
Street, NW (corner of 4th and G Streets, NW)
Washington, D. C. 20013 To Report Fraud, Contact: Waste, and Abuse in
Web site: www. gao. gov/ fraudnet/ fraudnet. htm, E- mail: fraudnet@ gao.
gov, or
Federal Programs 1- 800- 424- 5454 (automated answering system).
Public Affairs Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202)
512- 4800 U. S. General Accounting Office, 441 G. Street NW, Room 7149,
Washington, D. C. 20548
a
GAO United States General Accounting Office
Page 1 GAO- 02- 20 Securities Operations United States General Accounting
Office
Washington, D. C. 20548 Page 1 GAO- 02- 20 Securities Operations
A
Page 2 GAO- 02- 20 Securities Operations
Page 3 GAO- 02- 20 Securities Operations
Page 4 GAO- 02- 20 Securities Operations
Page 5 GAO- 02- 20 Securities Operations
Page 6 GAO- 02- 20 Securities Operations
Page 7 GAO- 02- 20 Securities Operations
Page 8 GAO- 02- 20 Securities Operations
Page 9 GAO- 02- 20 Securities Operations
Page 10 GAO- 02- 20 Securities Operations
Page 11 GAO- 02- 20 Securities Operations
Page 12 GAO- 02- 20 Securities Operations
Page 13 GAO- 02- 20 Securities Operations
Page 14 GAO- 02- 20 Securities Operations
Page 15 GAO- 02- 20 Securities Operations
Page 16 GAO- 02- 20 Securities Operations
Page 17 GAO- 02- 20 Securities Operations
Page 18 GAO- 02- 20 Securities Operations
Page 19 GAO- 02- 20 Securities Operations
Page 20 GAO- 02- 20 Securities Operations
Page 21 GAO- 02- 20 Securities Operations
Page 22 GAO- 02- 20 Securities Operations
Page 23 GAO- 02- 20 Securities Operations
Page 24 GAO- 02- 20 Securities Operations
Page 25 GAO- 02- 20 Securities Operations
Page 26 GAO- 02- 20 Securities Operations
Appendix I
Page 27 GAO- 02- 20 Securities Operations
Appendix II
United States General Accounting Office Washington, D. C. 20548- 0001
Official Business Penalty for Private Use $300
Address Correction Requested Presorted Standard
Postage & Fees Paid GAO Permit No. GI00
*** End of document. ***