United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office General Government Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 2000-02-24 monographic deposited born digital 44 p. GA 1.13:GGD-00-61 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-61 P0b002ee1803975a2 f:gg00061 DGPO 2010-08-12 2011-03-28 GAOREPORTS-GGD-00-61 machine generated eng fdlp REPORT GAOREPORTS-GGD-00-61 GGD-00-61 Securities Securities regulation Stock exchanges Brokerage industry Information disclosure Risk management Regulatory agencies Internal controls Capital National Association of Securities Dealers Small Order Execution System Other Written Product GGD Pursuant to a congressional request, GAO reviewed day trading, focusing on: (1) the nature and extent of day trading; (2) regulatory actions taken to address the day trading risks; and (3) the actions day trading firms have taken to address regulatory concerns.<p/>GAO noted that: (1) day trading among less experienced investors is an evolving segment of the securities industry; (2) day traders, who represent less than one-tenth of 1 percent of all individuals who bought or sold securities, accounted for a growing part of trading on Nasdaq, estimated by industry officials to be about 10 to 15 percent of Nasdaq volume; (3) these traders all did their trading at specialized day trading firms, but the firms employed various structures and operating strategies that affected the risks the traders faced; (4) some firms encouraged any individual who wanted to be a day trader, and had the capital to begin trading, to use the firm's systems and facilities to trade, risking the trader's own capital; (5) others emphasized that they wanted only people who were qualified and able to be professional traders to trade, risking the firms' capital; (6) these traders could be fired if they suffered significant loss, but they do not lose their own capital; (7) some firms employed a combination or variations of these strategies; (8) the effects of day trading on both individuals who engage in it and the markets as a whole are uncertain; (9) federal regulators have taken some actions to address the risks of day trading; (10) the regulatory arm of the National Association of Securities Dealers (NASD), called NASD Regulation (NASDR), and the Securities and Exchange Commission (SEC) have made a special effort to target their examination resources during the last 2 years on day trading firms, performing 67 examinations of day trading firms and their branches; (11) the rule violations found most frequently in their examinations of firms related to supervisory procedures, net capital computations, and advertising; (12) they also found violations involving margin and lending issues; (13) NASDR has recently submitted proposed rule changes to SEC that require day trading firms to assess the appropriateness of day trading for each potential customer and to fully disclose the risks of day trading; (14) NASDR and the New York Stock Exchange have also submitted proposed rule changes to SEC to tighten margin requirements; (15) some of the day trading firms GAO visited recognized these regulatory concerns and told GAO that they have already taken steps to provide better disclosure, screen prospective traders, and restrict certain activities, such as customer-to-customer lending; and (16) determining the adequacy and extent of oral disclosures, screening, and planned restrictions presents a difficult challenge because neither the regulators nor GAO could directly observe the interactions between the firms and traders or potential traders. https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-61/html/GAOREPORTS-GGD-00-61.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-61/pdf/GAOREPORTS-GGD-00-61.pdf GAO/GGD-00-61 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-61 Other Written Product GAO/GGD-00-61; Securities Operations: Day Trading Requires Continued; Securities Securities regulation Stock exchanges Brokerage industry Information disclosure Risk management Regulatory agencies Internal controls Capital National Association of Securities Dealers Small Order Execution System