Business Times

SEC's move to discourage quick buck gambler attitude comes under fire by players

A possible move by the stock market regulators to discourage day trading and controlling margin trading to investors by broking firms has come under fire by many brokers as well as small time traders.
They say that day trading had the blessings of the regulators, but now they're playing a different tune.
"Day trading and margin provision happen in all markets and day traders are always those who look for a quick buck (gambler attitude)," a broker said, noting that day trading is always about that (to make money while not investing much - Risk is high but so are the returns).

Brokers noted that day traders are an integral part of financial markets assisting in the active price realization of shares and providing liquidity in the market. The 10% price curb rule also came under criticism by them, who said that the Securities and Exchange Commission hasn't done well by imposing this, as it has killed this segment.

"Margin provision is also an integral part of financial markets (some countries allow for upto 90%), it is equal to borrowing from banks and investing in projects," an analyst said, adding that in general, leveraging is to be encouraged.

Deshan Pushparajah, Manager - Corporate Finance Capital Alliance Holdings Limited noted that there is a cartel of brokers and investors who manipulate shares. "It's plain for everyone to see. Our market is so small that people with reasonably deep pockets can do so. Day traders are those poor souls who got caught in this trap," he added.

Some others agreed, saying that SEC, with their sophisticated systems should be able to spot these trends and investigate these brokers and investors. They said that margin trading enables investors and speculators to leverage their equity. "For an active, liquid and efficient market to exist both investors and speculators are essential, whilst leveraging is also necessary for good market activity and will enhance the capacity to make returns," the analyst said.

However others say that too much of anything is good for nothing. "Too much speculation and day trading which is reflected by volume as well as volatility and too much margin is quite damaging for any share market," a second analyst said, adding that price curbs were put in place to control the obvious manipulation that was going on in the face of all the regulators, investors, brokers etc.

He also said that the primary objective of stopping manipulation cannot be achieved via price curbs. "Implementing it is good and helps to control but it's not the cure. The cure will come when the regulator has capacity to detect the manipulation, identify the group behind and take action to prevent it from happening. Because in the end the people who manipulate will use the price bands also to their advantage and manipulate again," he said. He said that with some shares, the sky was the limit if not for price curbs. "If they remove the price bands these shares will fly once again," he said.

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SEC's move to discourage quick buck gambler attitude comes under fire by players


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