Senate Subcommittee Reviews Day Trading Practices, Seeks Reforms to Clean Up Day Trading Industry

WASHINGTON -- Sen. Carl Levin, D-Mich., the senior Democrat on the Senate Permanent Subcommittee on Investigations, will help lead hearings reviewing the practices of the day trading industry on Thursday, Feb. 24 and Friday, Feb. 25. The hearings culminate the Subcommittee's eight-month investigation of the industry.

"Day trading stocks may work for a few," Senator Levin warned, "but we have learned that it is a dangerous game for the average consumer. The stakes are high -- tens of thousands of dollars -- but the promoters of day trading profit whether their clients win or lose, and in some cases they even stack the deck. Just like in Las Vegas, in the world of day trading, the only guaranteed winner is the house."

"Day trading is the practice of buying and selling stocks in very short periods of time, usually minutes," Levin explained. "Unlike investing, where the quality of the company is an important factor and buying stock is usually a long-term commitment, day traders often know nothing about the companies they are trading, and they don't care. They base their purchases and sales on stock market movements. Day traders may execute as many as 100 trades in one day; an investor typically makes 10 trades in one year."

The hearings this week will highlight concerns which have been raised about the day trading industry. The Subcommittee will hear the testimony of former day traders who have lost large sums of money and from key industry officials. Through this testimony, the Senators will seek reforms to eliminate improper day trading practices and make the public more aware of the risks involved with day trading.

Witnesses scheduled to testify before the Subcommittee include former customers of day trading firms; current and former employees of day trading firms; executive officers of day trading firms All-Tech Direct (which runs a branch office in Detroit, Michigan), Providential Securities and Momentum Securities; and federal and state securities regulators who will testify about various reform proposals designed to help clean up the industry.