Securities and Exchange Commission Chairman Arthur Levitt Jr. told a Senate subcommittee on Thursday that better disclosure is necessary to ensure that investors are not led astray by the hype surrounding day trading.
"I am concerned that some people may be lured into the false belief that day trading is a surefire strategy to make them rich," Mr. Levitt told the Senate's Permanent Subcommittee on Investigations.
The practice, which involves intra-day trading of stocks and other investments -- often within a matter of seconds -- has come under criticism, particularly since the killing spree in Atlanta by a disgruntled day trader.
The potential for heavy losses and the effect they would have on the stock market has led to scrutiny from regulators and crackdowns by the SEC and by state regulators in Massachusetts and Texas.
At Thursday's hearing Mr. Levitt told lawmakers that the SEC is investigating practices at more than 40 day-trading firms. The SEC said that the National Association of Securities Dealers Inc. has also inspected more than 20 firms.
Mr. Levitt said the SEC is particularly interested in eliminating deceptive advertising and marketing practices. In some cases, he said, firms are claiming to offer services they do not provide.
In a recent review of Web sites at more than 20 day-trading firms, the SEC found that though half of them made "considerable disclosure" about risks, many of them made little or no disclosure, he said.
Mr. Levitt also expressed discontent with what he described as "extremely lax compliance practices" at some firms, as well as their margin practices, because many day traders do not understand the risks of borrowing on margin.
"So when day-trading firms aggressively promote the lending of equity between day traders to cover margin deficiencies, I find it troubling," Mr. Levitt said.
There are 62 day-trading firms, with 287 branch offices, according to the North American Securities Administrators Association, the umbrella group for state securities regulators, which issued a report last month.
Matthew J. Nestor, the top securities regulator in Massachusetts, said he is pleased that Congress is looking into the problems of day trading.