Day Trading Firms Have Also Taken Steps to Address Concerns About Day Trading

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

oversight of the activity, many day trading firms have responded to

Have Also Taken Steps

changing market conditions and regulatory scrutiny. According to some

to Address Concerns

industry and regulatory officials, day trading firms are generally viewed as

more knowledgeable and sophisticated in terms of regulatory compliance

About Day Trading

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

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GAO-02-20 Securities Operations