Yeah, but doesn't the SEC rule say you must settle within three days, not that it has to be three days?
Excellent post, agree 100%. Also, you cannot daytrade effectively and not be able to short, which requires a margin account. Shorting is half our language, you need to be able to do both. Good point too from trader earlier, about the current rules are pushing traders into trading much riskier types of issues, rather than stocks. I think 25K is too high, fwiw, a 10K would be better .. also, this PDT rule that I believe was supposed to protect brokers, actually ended up helping put many smaller DAT shops out of business, since less trading volume/commissh revenue available. Ideas? Ken
Thanks dr ma - your explanation helped. I'm guess I'm coming from the perspective that your brokerage should not let you trade with money you don't already have in your account (assuming it is a cash account). This stuff about sending money just in time for settlement date is foreign to me and probably not used by a majority of cash account holders. I'd much rather be able to daytrade in my cash account than have the right to wire my money in 3 days after I initiated a trade. Carl
Ken at DTU , this is an interesting topic and some of the rules are confusing. Keep up the good work at DTU. I learn alot on these posts myself. The day trading rules & regs. can be confusing & subject to interpretation. CarlErikson-Even if stocks settled in one day, as far as I know, you cannot day trade in a cash account! You don't get margin and "time & sales" in a cash account, as my example before. As Ken pointed out, you cannot "short" stock in a cash account, which limits any profit potential as a day trader. Gene Weissman Lieber & Weissman Sec., LLC gweissman@stocktrade.net What I mean by you do not get "time & sales" is even if the stocks settled the next day(in a cash account), all your equity is subtracted by purchasing & selling stocks and you do not get the funds back until the next day in a cash account, even if you had one day settlement. This was confirmed to me by our compliance officer and clearing firm. I am speaking for myself and not as a regulator or a representative of any firm-Gene
Gene, I think you are mistaken. The rule is: Cash accounts are not able to use sales proceeds for new purchases until the third business day following the sale. Thus if you have 10K, you can buy 10K worth of stock. If you sell on the same day, you can't use the proceeds from the sale for another trade until T+3.
I just contacted IB out this and was told that I would have to convert my cash account to a margin account and then I could avoid the 3 day settlement rule. The 3 day settlement rule is a killer for me because I sometimes hold just a night or two for a small profit. Imagine if I make a decent profit for two days and then find that my dollars are tied up for 3 afterwards! In 3 days it's possible (even in this market) that the trend could have ramped up 10%! There's a lot of guys on elite who get upset if their order routing takes over a few seconds. And yet I have every trade in my Roth IRA (which HAS to remain a cash account) waiting for 3 days! To me this is one of the last holdouts taking us back to the NYSE pre-pit days under a tree in mid-Manhattan. I don't know who is to blame for this, but someone needs to come up with an answer that isn't a throwback to the early 60's. Jeez, maybe the guys at the SEC and the exchanges need to learn the meaning of ECN's, DS3's and other little things that we as traders take for granted in the digital age. Any chance we could get an overnight settlement here in 2002?
And, yes, I know it's not IB's fault. I think they are just doing out of their interpretation of the regulations. (But I can tell you that Ameritrade let me instantly trade in my cash account w/o waiting for the 3-day settlement.)
IB's interpretations come from discussions with NASD and the NYSE. Based upon the Datek letter that someone posted here, it sounds like Ameritrade will have to change their policy. I did read a news report last week stating that they will vigorously defend their interpretation of the free riding regulation. Unfortunately with Datek apparently relenting so quickly after the statement, Ameritrade may be forced to do so as well. The best we can hope for is that they fight it an win. But, as I said in a previous post, if you were running a large brokerage, would you take that risk?
I understand what you're saying. I'm just saying that someone ought to figure out a way to settle in less than 3 days. 3 days, 3 years, 3 billion years - it's all the same to a trader.
def, Our compliance dept. disagrees with IB's interpretation . In a cash account you do not get "time & tick" regardless of settlement date . If I have $10,000 in equity and I Buy $10,000 worth of Stock & then Sell $10,000 worth of stock(cash account) I am done for the day and I cannot trade again. Def, you are welcome to private message me on this subject on any SRO info you have . I'm all ears and these rules can be subject to interpretation by SRO's,the NASD and the NYSE. Gene Weissman Lieber & Weissman Sec., LLC gweissman@stocktrade.net