floating a trial balloon concerning pdtr regulation

Discussion in 'Trading' started by marketsurfer, Jan 2, 2003.

  1. an attorney friend and i talked about the pattern day trader regulation earlier this evening. i thought i would float an idea to see if there is any interest in looking into a class action suit to eliminate the pattern day trader rule. being that there are many many years of the market without the government dictating how much you need to participate, it may be possible to show economic discrimination fostered by the regulation. in addition the seems to hurt the new trader by giving him more rope to hang himself with. do you think there is any interest in pursuing this ?? do you think there are grounds for such an action ?? do you personally have any interest in potentially being part of such a "class" ??

    just floating a trial balloon--pardon the pun ! :)

  2. It's been suggested on another PDT thread that you can't sue the SEC. Perhaps your attorney friend could at least verify that claim for us.

    I think in any case a simpler and more constructive remedy would be to file with the SEC a well-written "petition to repeal or amend" this rule, which the SEC site provides plain opportunity to do*. Having a lawyer working on this with you is an advantage right off. It's not the kind of "petition" that requires collected signatures. It just requires that the arguments against the rule are well-constructed and clearly logical.

    Surely we should try this approach before resorting to a lawsuit. I wouldn't care to be named as a plaintiff in a class-action suit, but I would be willing to help you work on the formulation of an SEC petition to repeal or amend this rule.


  4. qdz


    okay. in this year, the orginal PDT rule will no longer exit. It is either modified or abolished. Cheer.

  5. qdz


    - yes, count me in -- you bet!

    - no, the regulation protects new traders -- whoever believes this either has wishful thinking or deliberately misleads people to believe in the crap. The NASD made it clear it is a measure to protect brokers. And the untold beneficiary are special interest groups.

    -i am not sure, i need more information
    -- okay please search PDT in this forum. there are plenty of information. In fact, I pointed out long time ago, talent lawyers will make a HUGE fortune on a suite against the PDT rule like those against tobacco companies.

    - what is this another lawyer needing work ??
    -- lawyers are double-edge swords. they protect or hurt you. And you have to pay premium for protections.

    Thanks for the poll

  6. The SEC and the NASD both have advanced websites that seem to do everything except display the actual texts of their regulations in a simply accessable manner.

    Apparently the "PDT rules" are not a separate rule, but a set of amendments to NASD Rule 2520 governing general margin practices.
    The PDT amendments seem to be filed as "SR-NASD-00-03".
    Damned if I could find the text of 2520 on the NASD site, or the text of SR-NASD-00-03 on the SEC site. But here is the text of the NASD amendments to 2520, constituting the PDT regulations:


    If you search SR-NASD-00-03 on the SEC site, you will get a few of the statements the regulators made to justify the PDT amendments, and also a few comment letters from people stating their objections to the rules and giving their reasons for objecting.

    If you want to try looking through these sites yourself:
    www.sec.gov and www.nasdr.com

    One thing is sure: subjecting stock options, which are non-marginable, to these restrictions which are amendments to regulations governing margin, is utterly ridiculous. If they want to say that the value of stock options cannot be calculated as part of the $25,000 margin minimum, ok, that's understandable. But to additionally limit trading of those non-marginable options to 3 daytrades per 5 days, is bogus. Either count options as part of the $25,000, or don't count them as part of the margin daytrades.
  7. Let's do it, dogg!:mad:
  8. The president of SEC is a former attorney for Wall Street brokers sure petitions will work :)

  9. There is also an other reason they did it: they pretext that daytraders adds to volatility. It is in market official theory that numerous little traders add noises to the market. But this is in fact in favor of so called efficiency theory. Now they will say that too much noise is not what they want.

    Some researchers wrote an article with a computer simulation showing that it is in fact market makers that drive volatility and not daytraders, that daytraders tend on the contrary to lower the spread. Since I have my own model I would say that it is both market makers and daytraders because volatility is due to acceleration of price per unit of time and in model unit of time is an artefact coming from activity and activity come from avalaible volume a bit like free enthalpy comes from the whole energy. Saying that it also explains why electronic market accelerate also volatility. So there are 3 factors at least to increased volatility in today's market. Now pretending they want to lower volatility is hypocrisis since the success of a market place depends on its volatility as writtent in professional books dealing with futures market. And everybody can see that what really increase volatility is also big brokers recommandation. So why do they allow to publicize them ?

    So their real intention should be elsewhere:

    - perharps they want now to kill little brokers and force concentration since with internet they don't need them any more. It is the same for traders working the open cry market. In France most of them had to find another job because electronic market was much more illiquid at scalp levels and scalpers accustomed to open cry were not fast enough and have been washed out. Some of them never return to the market Some of you finding that market has changed should look for the same reason: perharps you are scalpers and with electronic market you have to go to upper scale or conditions will be harder and harder and you will risk to be washed out one day. But going to higher scales implies to change from scalp to swing and play with less leverage and lower rentability. This in fact is the transition for the second possible reason.

    - One know that globally this is a zero sum game. So market makers have to dispute revenue with others especially with daytraders. Requiring a higher capital is barrier like a tax barrier to protect entries of newcomers.

    - The more numerous daytraders are, the more difficult it is to drive them and make profit for market makers.

    There must be some other reasons, it is just the immediate reasons I see. Now from the legal point of view I don't know if it can serve as arguments.I only speak from technical point of view.

  10. nitro


    How does this affect the professional trader either way?

    #10     Jan 4, 2003