Expect some flak in Britain following the decision by TD Waterhouse - the Toronto Dominion offshoot that is now Britain's biggest execution-only stockbroker - to lend money to punters to buy shares. If TD Waterhouse does go ahead, other brokers (particularly some of the online ones) are likely to follow suit.
There's nothing unethical about this practice, of course, and in the United States, margin trading of this type is a common practice. It's all grand of course if the value of the shares bought keeps on rising but when the Nasdaq falls out of bed and shares take a dive, the problems of share punting based on borrowed money come home to roost.
The Irish market, of course, had its own variation of this sort of practice - the rollover system - where the broker only looked for some of the cost of the shares up front.
That looked like a great system until the collapse in Dana shares forced the collapse of MMI as hundreds of investors, who used the roll-over arrangement, were left with shares worth a fraction of what they contracted to pay for them.
Some of these investors failed to stump up, eventually forcing MMI into liquidation.
One can only assume that whatever margin trading system is introduced by TD Waterhouse (and others), it will not leave it exposed as MMI found itself last year.
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