Gramm Opposes Plan to Screen Day Traders

The Senate Banking Committee chairman said Thursday that he opposes a regulatory proposal that would require day-trading firms to screen prospective customers, saying it would impinge on investors’ personal freedom.

“You’re getting into a level of paternalism that I’m not going to support,” said Sen. Phil Gramm, the Texas Republican whose panel oversees securities regulatory policy. “You can’t protect people from making bad decisions.”

Gramm said in an interview that he has conveyed his views to Securities and Exchange Commission Chairman Arthur Levitt.

The SEC issued the National Assn. of Securities Dealers proposal, which was prepared at Levitt’s request, for public comment Sept. 14. People have until Oct. 12 to respond. The SEC will subsequently decide whether to approve the plan.

Day-trading firms, which let customers use their facilities to place rapid-fire trades in an attempt to profit from small movements in stocks, have opposed the imposition of new screening obligations.

The NASD proposal would force day-trading firms to reject prospective customers whose financial goals, experience and income would not appear to be compatible with risky investing.

A firm would need to gather background information about a customer to determine whether a day-trading strategy is “appropriate.”

A companion NASD proposal, which has not drawn as much industry criticism, would require day-trading firms to disclose potential investment risks to customers.