Day-Trade Rules May Be Sought

National Assn. of Securities Dealers Chairman Frank Zarb plans to propose rules that would impose new responsibilities on brokerages whose customers use “day-trading” practices.

“Firms have obligations when they recommend day-trading strategies to customers,” NASD President Rick Ketchum said Monday.

Zarb will ask the NASD board on March 25 to propose a rule that would require brokerages to disclose the specific risks of making daily, rapid-fire trades in stocks that can be volatile, Ketchum said. The NASD chairman will also propose that firms consider whether this type of trading is generally appropriate for each customer’s investment goals, he said.

A trade group of day-trading brokerages said Monday it supports more risk disclosure. But if the NASD proposes an “appropriateness” standard, “they’ll have a fight on their hands,” said James Lee, head of the Electronic Traders Assn. and also head of Momentum Securities Management, one of the largest day-trading firms.

An appropriateness proposal should apply to all brokerages, not just day-trading firms, he said.

A rule requiring firms to assess the appropriateness of day trading for their customers could increase exposure to investor lawsuits.

Any proposals OKd by NASD would be issued for public comment and would need Securities and Exchange Commission approval.

Day trading--the subject of a Times special report in last Sunday’s Business section--is a form of aggressive online trading practiced by perhaps 4,000 individual investors nationwide. Those investors trade from specialized day-trading brokerages that have sprung up in recent years, offering investors direct electronic access to the Nasdaq Stock Market. Many of these firms also train investors in day trading, often charging thousands of dollars in training fees.

Day-trading firms have drawn fire from some regulators who argue the firms contribute to increased market volatility, and that some have failed to adequately tell customers of the risk of huge losses. During the last four months, at least five day-trading firms have been charged with fraud, deceptive marketing or improper registration by state regulators.

But the NASD faces some major challenges in imposing regulations--including deciding which investors would be covered.

Hundreds of thousands of investors trade on the Internet at home, and some do so much buying and selling that it might be considered day trading, Lee said. These online investors typically aren’t affiliated with day-trading firms.

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Splitsville

Stock splits, which many investors view as bullish, have increased markedly in the last two years, and the trend is continuing in 1999 as Best Buy and Starbucks on Monday announced 2-for-1 splits, joining tech leaders such as IBM, Lucent, Dell and Yahoo in this year’s split brigade. The Times asked editor Arnold Kaufman, whose Standard & Poor’s Outlook newsletter tracks stock splits, to pick the stocks likeliest to join the trend and announce splits in coming months. All of his picks have outperformed the blue-chip benchmark S&P; 500 index’s 23% gain in the last 12 months. Along with 12-month return, each stock’s most recent split is listed:

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Ticker Company symbol Mon. close 12-mo. return Previous split American Intl. Group AIG $119.00 51% 3-for-2 Biogen BGEN 93.38 116 2-for-1 Citrix Systems CTXS 81.63 89 3-for-2 EMC EMC 104.19 182 2-for-1 Interpublic Group IPG 78.13 51 3-for-2 MCI WorldCom WCOM 85.00 118 2-for-1 Medtronic MDT 76.63 45 2-for-1 Tyco Intl. TYC 78.50 65 2-for-1 Wal-Mart Stores WMT 88.25 96 2-for-1

Company American Intl. Group 1998 Biogen 1996 Citrix Systems 1998 EMC 1997 Interpublic Group 1997 MCI WorldCom 1996 Medtronic 1997 Tyco Intl. 1997 Wal-Mart Stores 1993

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Sources: Standard & Poor’s, Bloomberg News *

Test Your Savvy

Which stock is the most widely held among U.S. diversified mutual funds?

Answer appears Wednesday.