US broking houses and major stock exchanges are attempting to slam the brakes on Internet share mania by making it difficult for small investors to gamble their savings.
After several nudges from industry watchdogs, several brokerages have placed restrictions on the general public investing in Internet companies in a bid to control the share frenzy that is sending Internet stocks rocketing way beyond their realistic values.
Online broker Charles Schwab, for example, has tightened trading for small, speculative investors on 23 Internet companies which include Yahoo! and eBay. Schwab has put up the deposit required on these from 50 to 70 per cent in a bid to deter them.
Morgan Stanley?s online division, Discover Brokerage Direct, has gone a step further and halted all margin activity on 20 Internet stocks that have shown to be extremely volatile.
Many brokers have stopped taking smaller share orders over the Internet. Instead they are insisting that small investors make their orders via telephone so that a broker can warn them of the gamble they will be taking on current Internet stock.
The situation has become so critical that the National Association of Securities Dealers, the self-regulatory agency that watches over Nasdaq, is expected to recommend temporary stops on Internet shares that are showing wild, inexplicable swings in pricing.
Analysts believe the volatility of Internet shares is being driven by small investors speculating on Internet stock online from home. Some of these investors have access to unlimited trading which enables them to buy and sell huge amounts of stock in a day.
These investors gamble on whims and rumours causing violent ups and downs in share prices. Broadcast.com, for example, saw its share price shoot up to $285 in two days in January this year, only to later watch them tumble to $108.
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