Following an industry trend, Fidelity Investments' clearing brokerage business has raised its margin requirements for its more than 200 correspondent broker-dealers.
Last Monday Fidelity Investments' institutional brokerage group raised its margin lending requirement to 35%, from 30%, meaning investors must put up a larger portion of the money used to buy stocks.
It also expanded its list of stocks that cannot be bought on margin and announced special margin requirements, upward of 60%, for several stocks deemed prone to sharp price fluctuations.
One broker voiced concern that the new requirements would cause the bank broker-dealer he is affiliated with to lose clients to discount brokerages with easier lending terms. "They will lose a lot of business," said Paul Werlin, a broker in St. Petersburg, Fla. He declined to identify the bank he is affiliated with.
But Mark Willis, the president of Irwin Union Bank and Trust's brokerage arm in Columbus, Ind., welcomed the move.
"From an industry standpoint, it's probably needed," said Mr. Willis, whose unit uses Fidelity as its clearing broker.
The 35% requirement has become an industry norm, and Fidelity is in fact among the last to go to that level, he said.
Tougher margin lending practices throughout the industry are being driven by regulators' calls to keep investors aware of market volatility at a time when interest in heavily traded Internet stocks is soaring.
Limiting the stocks that can be bought on margin and making investors put up more of the money for such transactions helps ensure that investors do not get in over their heads, industry observers said. Such an approach steers investors away from taking big risks and takes the pressure off brokers to talk their clients out of certain investments, said Louis Harvey, the president of Dalbar Inc., a Boston consulting company.
"Margin is one way in which responsible institutions can address the issue," he said. "You don't want to address the issue by telling a client who wants to buy the latest hot stock, 'You shouldn't buy that stock.'"
A Fidelity spokesman said the company's new restrictions are to "help protect assets."
Investors at bank-owned, full-service brokerages would probably remain with them, the spokesman said, because at a discount firm they would have to forgo brokers' advice and guidance.
And he said that a study the company did before raising the requirement to 35% showed that most of its big competitors had already done the same.
