FSA warns over margin trading on the Net

THE FINANCIAL Services Authority yesterday warned of the dangers of online stockbrokers lending money to clients to buy shares after three US-owned online stockbrokers announced plans to launch"margin trading" in the UK.

A spokesperson for the authority said: "Margin trading has been around for donkey's years. What's new is that it is now being combined with on- line trading. The key thing is customer education. People must understand that day trading [combined with margin trading] is risky."

TD Waterhouse intends to be the first to offer margin trading to online clients next year, followed by E*Trade and DLJ Direct. While margin trading has been common in the US, it has only been offered by private client stockbrokers in the UK to a limited number of long-term clients. A huge boom in margin trading, where brokers lend investors the cash to buy shares, with the loan secured on those shares, has commonly been blamed for the Wall Street Crash of 1929.

The FSA spokesperson said yesterday: "You're right about the 1929 crash. That's why the US has stricter rules than the UK [on margin trading]."

Paul Lubbock, head of marketing at DLJ Direct, said: "We'd like to introduce margin trading in due course to selected customers with a track record. But it will probably excite the regulators a bit."

A spokesperson for E*Trade, Bahareh Green, said they intended to introduce such trading some time next year. "Its a brand new idea to people in the UK."

Bharat Masrani, the executive vice president of European Operations at TD Waterhouse, said: "We are the second largest discount broker in the world and we have been offering margin trading in the US for years with no problem."

News Analysis, page 20