Thank you for the opportunity to comment on the General Accounting Office's ("GAO") draft report entitled Day Trading Requires Continued Oversight. The GAO sought to determine the nature and extent of day trading, assess regulatory actions taken to address the day trading risks, and assess the actions day trading firms have taken to address regulatory concerns. While your report focuses largely on identifying specific issues germane to day trading, it highlights the general regulatory consensus that day trading is risky for individual investors, represents a growing portion of the Nasdaq trading volume, and is an evolving part of the securities industry As the report indicates, the Commission's Office of Compliance Inspections and Examinations (OCIE”), in conjunction with the National Association of Securities Dealers Regulation, Inc. ("NASDR"), have made a special effort during the past two years to target examination resources on day trading firms, examining collectively a total of 67 firms. Additionally, the report notes that the Commission is currently reviewing proposed rule changes submitted by the self-regulatory organizations that would require day trading firms to assess the appropriateness of day trading for each potential customer, to fully disclose the risks of day trading, and to tighten day trading margin requirements. The Commission concurs with the conclusion of the GAO -- that follow-up examinations are important to ensure that deficiencies are corrected. Accordingly, the Commission and the NASDR will conduct additional targeted examinations of day trading firms to ensure that firms have taken corrective action in response to previous examination findings In addition, in conjunction with the NASDR, we plan to examine during 2000, all remaining day trading firms that were not examined by either the Commission or the NASDR in 1999. The staff also anticipates conducting additional oversight, specifically designed to assess compliance with any rule changes adopted this year. Appendix I Comments From SEC Mr Richard Hill Furthermore, we appreciate the GAO's recognition that major changes are occurring in the structure of the securities markets, particularly the impending conversion to decimal pricing. Pursuant to your recommendation and following the implementation of decimal pricing, the Commission, in conjunction with the NASDR, intends to evaluate the growing use of electronic communication networks by day traders on the integrity of the markets. Thank you and your staff for your courtesy during this assessment. Very truly yours, Lori A. Richards Director |