ATLANTA … Georgia Secretary of State Cathy Cox today endorsed the findings and recommendations of a just-released report on day trading by the North American Securities Administrators Association (NASAA) which highlights significant problems pervasive in the industry. The NASAA report, issued in Washington today, documents problems with firms failing to disclose risks and screen customers for financial suitability. The study, the first of its kind, includes an independent analysis of a sampling of accounts at All-Tech Investment Group, which found that 70 percent of the firm’s customers lost money.

Secretary of State Cox, who serves as the state’s Commissioner of Securities, said the new study underlines the exceedingly risky nature of day trading and points to the need for enhanced regulatory oversight of these firms at the national and state level. "The vast majority of investors find out too late that not only is day trading not a viable livelihood, it is a prescription for financial disaster," Ms. Cox said. "Like our counterparts in other states, we have serious concerns about marketing practices, customer screening, suitability and other operational issues at day trading firms. I believe additional regulation, at both the state and national level, may be necessary to address the serious problems documented in the NASAA report," she said.

Last December NASAA, of which Georgia is a member, established a task force to look into day trading after several states took enforcement actions against firms in their jurisdictions. Today’s report, the product of seven months of study and analysis by state regulators, criticized marketing claims by some day trading firms, including All Tech. In a promotional message All Tech suggests that day trading could "become a mainstream career choice." Yet an analysis of 30 randomly selected accounts of All Tech customers concluded that "70 percent of public traders will not only lose, but will almost certainly lose everything they invest." The study also found that "only 11.5 percent of the sample evidenced the ability to conduct profitable short-term trading."

Regulation of securities brokers is shared by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and state regulators. Traditionally, "suitability" standards address a determination by a brokerage firm as to whether an investment in a specific security is appropriate for a specific investor. Secretary Cox said regulators are considering whether such provisions should be applied to recommendations of an overall trading program such as day trading.

Some day trading firms promote and arrange inter-customer loans to help traders meet margin calls. Ms. Cox joined in NASAA’s recommendation that the NASD specifically ban such lending practices to prevent customers from trading beyond their financial means.

The report also documents cases where customers are encouraged to obtain funds from third parties in order to trade. Such conduct may place traders in the category of an investment advisor, subject to registration and regulation by the state.

Ms. Cox said her office will consider new regulations requiring day trading firms to affirmatively disclose in advertising, marketing materials and training seminars the substantial risks of such an investment program.

On July 30, the day after Mark Barton’s shooting rampage at the Atlanta offices of All Tech and Momentum Securities, Georgia’s Securities and Business Regulation

Division contacted the firms to notify them the agency would be requesting certain information about both Mr. Barton’s accounts and general procedures used to attract and service customers. Ms. Cox said her office today was issuing subpoenas for that information.

In addition, Secretary Cox has directed the Securities Division to undertake a survey of day trading firms’ Georgia customers to assess their experiences with the firms’ operational and marketing practices. Ms. Cox said a total of six day trading firms, including All Tech and Momentum, operate branch offices in Georgia.

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