Day Trading Firms Have Continued to Evolve

Since 1999, day traders as a group and firms that offer day trading  capability have continued to evolve. We also  found that many day trading firms now market to institutional customers,  such as hedge funds and money market managers, rather than focusing on  retail customers. Another change involves the growth in the number of day trading firms  being acquired by other brokerages and in market participants that want  the direct access technology. Day Trading Firms Have Also Taken Steps to Address Concerns About Day Trading

In addition to the ongoing changes in day trading and in regulatory  oversight of the activity, many day trading firms have responded to  changing market conditions and regulatory scrutiny. In general, today’s day  traders appear to be more experienced and knowledgeable about securities  markets than many day traders in the late 1990s. Likewise, many day  trading firms have begun to focus on institutional traders as well as retail  customers, and more firms are likely to engage in proprietary trading. Implementation of disclosure rules and amendments to  margin rules have directly or indirectly addressed many of the concerns  raised by the Permanent Subcommittee. Finally, the firms themselves have adjusted their behavior in response to  market changes and regulatory scrutiny. The most noticeable changes  appear in their advertising and Web site information, which in many cases  now generally highlight the risks associated with day trading and the fact  that day trading is not for everyone.
What GAO Found

Concerns arose in the late 1990s about day trading, particularly the use of questionable advertising to attract customers without fully disclosing or by downplaying the risks involved. Concerns were also raised that traders were losing large amounts of money. Day traders as a group and day trading firms have continued to evolve and are generally more experienced and sophisticated about securities markets and investing than was the case several years ago. Likewise, day trading firms' operations have evolved, and many have shifted their primary focus away from retail customers and toward attracting institutional customers, such as hedge funds and money market managers. Furthermore, more firms are likely to engage in proprietary trading activities through professional traders that trade the firms' own capital. Finally, although the number of day trading firms appears to have remained constant, several day trading firms have been acquired by other brokerages and market participants whose customers want the direct access to securities markets and market information that technology used by day trading firms provides. Since GAO's 2000 review, the Securities and Exchange Commission and the self-regulatory organizations have addressed many of the concerns raised about day trading. In addition to the ongoing changes in the industry and regulatory action, day trading firms have responded to changing market conditions and regulatory scrutiny by changing their behavior. The most noticeable changes appear in their advertising and website information, which now generally highlight the risks associated with day trading and the fact that day trading is not for everyone.