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Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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September 30, 1999

Washington to Impose More Rules for Day Traders?

By William Hoffman

Congress will likely be fixated for a few more weeks, on the 13 appropriations bills it must pass to keep the federal government running, Capitol Hill observers say.

But day trading proponents will be fixated on something closer to home - the outcome of a Senate subcommittee hearing recently held on their activities.

Education

"My feeling is that [any potential] legislation will probably head in the direction of further education" for neophyte day traders, said Ray Johns, senior market editor for Monterey, Calif.-based Daytraders.com, a daily e-mail stock report for day traders and short-term investors.

Stricter day trading suitability laws are under consideration.

"I don't think in the real world that you can hold the broker responsible for the trader who wants to trade his or her own money," Johns said.

Such laws would invite abuse by removing personal accountability for making bad trades, he added.

If there's action to come from the federal government on day trading and concerns about market volatility, Johns said, it might come instead in the form of a reduction in margin availability for short-term traders.

Margin Laws

The Federal Reserve has speculated openly about using margin availability as a tool to curtail higher risk activities in the markets, Johns noted.

The Senate Governmental Affairs Committee's Permanent Subcommittee on Investigations announced its hearings on day trading at about the same time as Sen. Charles Schumer (D-N.Y.) said he intended to ask Sen. Phil Gramm (R-Texas) to hold hearings on day trading in his finance committee. Gramm is chairman of the Senate Finance Committee.

A Schumer spokesperson said the senator's original request to Gramm has been withdrawn.

Schumer sponsored legislation, S. 1015. The bill calls for periodic disclosure of online securities transactions, investor protections against online fraud, and a Securities and Exchange Commission study of online trading's effects on the markets. His bill hasn't budged from the Senate Banking Committee since it was introduced.

Other Proposals

At least a half-dozen other securities industry proposals (many only partly concerned with "online trading," and none apparently devoted to "day trading") are pending in either the House or Senate, according to a search of Congress's "Thomas" web site (the popular name for the House website).

Considering the number and political clout of the bills' co-sponsorships, and the pressure of Congress's appropriations deadlines, observers agree that new day trading legislation is unlikely to see a floor vote this year (and perhaps not even in this congress).