More Scrutiny for Day Trading

Amid growing concern nationwide that most individual investors who become “day traders” lose money, California securities regulators said Wednesday they are stepping up scrutiny of the brokerage firms that provide day-trading lessons and services.

The Department of Corporations said it plans “heightened surveillance” over about 10 day-trading firms operating in California.

Instead of routine exams, in which the department periodically studies a brokerage’s books to ensure compliance with state rules, day-trading firms have “moved to the head of the line” for exams, said enforcement chief Bill McDonald.

Day-trading brokerages have attracted thousands of individuals nationwide, as new technology has allowed small investors to engage in rapid-fire stock trading.

But several states have filed complaints against day-trading firms, charging them with overstating potential profits to lure customers and engaging in investment advisory activities without proper licenses. The California exams may determine whether regulators take similar actions against any firms.

On Wednesday, the state Senate’s Finance, Investment and International Trade Committee held a hearing on whether the firms sufficiently warn customers about risks.