SEC Approves Rule on Screening Day-Traders

The Securities and Exchange Commission has approved new rules requiring that day-trading firms screen customers to determine if they are appropriate for the lightning-fast daily trading style.

The rules, proposed by the National Assn. of Securities Dealers on Sept. 21, were approved by the SEC on Monday and are expected to take effect within 90 days.

The SEC also said it will accept public comment for 21 days on a smattering of revisions to the rule proposed recently by the NASD.

A spokesman for the Electronic Traders Assn., which represents day-trading firms, said the group has major problems with the rules. “It creates enormous problems for online firms,” said Saul Cohen.

Day-trading brokerages say the rules are discriminatory and place unfair burdens on them.

The new rules require firms that offer day-trading to retail customers to deliver a “risk-disclosure statement” to potential customers.

Once a firm delivers the risk-disclosure statement, it has two options. It can approve the customer’s account for day-trading if it has “reasonable grounds for believing” that day-trading is appropriate. Or, it can approve opening an account but get a written agreement from the customer that he or she doesn’t intend to use the account for day-trading activities.

The risk to a brokerage is that “approval” by a firm could make it vulnerable to increased liability in any disputes with a client.