Pursuant to a congressional request, GAO reviewed day trading, focusing on: (1) the nature and extent of day trading; (2) regulatory actions taken to address the day trading risks; and (3) the actions day trading firms have taken to address regulatory concerns.
Recommendations for Executive Action
|United States Securities and Exchange Commission||1. Because the effects of day trading in an environment that depends less on the Small Order Executive System and more on electronic communications networks (ECN) are uncertain, the Chairman, SEC, in conjunction with NASD, should evaluate the implications of the growing use of ECNs by day traders on the integrity of the markets. GAO recognizes that major changes are occurring in the structure of securities markets, especially the change to decimal trading, and recommends that the evaluation of day trading begin after decimal trading is implemented.|
|United States Securities and Exchange Commission||2. Day trading is risky for individual investors, represents a large and growing portion of the Nasdaq trading volume, and is an evolving part of the securities industry. Therefore, the Chairman, SEC, should do at least one more cycle of targeted examinations of day trading firms to ensure that firms take the corrective actions they propose in response to previous examination findings.|