max401 , Good observation. no comment. Gene Weissman Lieber & Weissman Sec., LLC gweissman@stocktrade.net
It would appear that Datek has thrown in the towel. Here is an email that was sent to a customer of Datek. WE ARE WRITING TO INFORM YOU OF CERTAIN INDUSTRY CHANGES THAT WILL AFFECT ALL BROKERAGE FIRMS AND YOUR TRADING ACTIVITY. During the past two years, the NASD and the staff of the Federal Reserve Board have issued rules and interpretations concerning active trading in cash and margin accounts. The NASD recently provided us further guidance concerning these rules and interpretations. Under Federal Reserve Rules, clients must make full cash payment for securities purchased in a cash account before those securities are sold. For example: At the beginning of the day, a client holds $10,000 cash in a cash account. The client then makes the following transactions: · The client buys a position in Company A for $10,000, applying the $10,000 in cash to complete the purchase. · The client then sells that position in Company A and nets $10,000 in sale proceeds. · Next, the client buys a position in Company B for $10,000. · Finally, the client sells the position in Company B and nets an additional $10,000 in sales proceeds. Under Federal Reserve rules, the last transaction, the sale of shares in Company B, would not be permitted because the client does not have cash in the account to pay for the purchase of the shares of Company B. Trading in this manner may result in a 90-day restriction limiting purchases to the cash available in your account on trade date. If you choose to continue to engage in the type of purchases illustrated above, you must, depending on your circumstance: · Add funds to your cash account; or · Convert to a margin account. * Certain other rules or restrictions, however, may apply to your trading activity. Datek Customer Support is available to help you determine the approach that is best for you. Please contact us via @nswerbox or call us at 1-800-823-2835. Please be assured that we will do everything possible to assist you with making any changes you require. Thank you for your business. Sincerely, John Mullin President Datek Online Financial Services LLC
Forgive me if I am misreading you here, but are you really saying that if I have $10,000 in my cash account and I buy $5,000 worth of MSFT and then sell $5,000 of MSFT that I am done for the day? Seems ridiculous to me. Carl
CarlErikson, Carl....you got it right.You are done for the day if you have $10,000 in a cash account and you Buy $5000 worth of stock & Sell $5,000 worth of stock. I don't make the rules...I follow them. Gene Weissman Lieber & Weissman Sec., LLC gweissman@stocktrade.net
Can someone explain to me why the second buy is allowed in this example? I mean, either you have the cash or you don't. If you have the cash, then you should be allowed to buy. If you don't, you shouldn't. Note that at Interactive Brokers, if you don't have the cash upfront, you can't buy anything. This is not the same as other brokerages where you can wire money in before settlement date. It seems like there should be 2 different brokerage classifications. Brokerages can use the settlement date scheme (and must prohibit daytrading in a cash account), and other brokerages can instantly credit your account with proceeds (and allow daytrading in a cash account). The current scheme is idiotic and is not implied by written regulations. Carl
So suppose I start flat for the day, with $10,000 in cash. I should at least be able to buy $10,000 worth of MSFT and then later sell $10,000 worth of MSFT in the same day. How is that a violation of any written regulation? Carl
CarlErikson, You cannot Buy $10,000 & Selll $10,000 worth of stock if you only have $10,000 in a cash account. Remember, you get no margin. With $10,000 you can only Buy $5,000 and Sell $5,000 worth of stock and you are done for the day. You do not get "time & sales".If I did buy and sell an extra $10,000 worth of stock, I would have to come up with $10,000 more dollars. Gene Weissman Lieber & Weissman Sec., LLC gweissman@stocktrade.net
I can and have done this at IB. You seem to be treating buys and sells as an additive process here instead of a matching process. I don't agree. Carl
If this quote from Datek is correct: "· The client buys a position in Company A for $10,000, applying the $10,000 in cash to complete the purchase. · The client then sells that position in Company A and nets $10,000 in sale proceeds. " then one of you has got it wrong:
"Can someone explain to me why the second buy is allowed in this example? I mean, either you have the cash or you don't. If you have the cash, then you should be allowed to buy. If you don't, you shouldn't." The problem is the three day settlement. If everything settled imediately then you could day trade because you would always have the cash that is shown in your account. The reason you are able to buy a second time is because you don't actually have to pay for your trade on the day you place it. You are allowed to wait the three days for the settlement to happen and then everything pays for itself. Where this whole interpretation falls apart is the following day. Your broker will let you use your $10k the following day even it your trade from the previous day has not settled. This is where it becomes clear to me that this is not about paying for trades or settlement days or freerides, but it is actually about daytrading and keeping as many people from doing it as possible. The people who regulate our industry know very little about capitalism or free markets. This is a perfect display of that fact.