In a cash acount isn't the example of buy/selling multiple times before settlement freeriding. T+1 special terms - I'm not up to date on US clearing procedures but if it were that simple, every firm would be doing it to get around the PDT rules for cash accounts. I was under the impression that you have to get the counter party to agree. In any event, if we're talking IB, it is a moot point. The costs involved in relation to the business gained would not be worth it.
Exactly. So why can't I do this with my cash account (assuming that my broker requires that my funds be in my account at time of purchase, i.e., like IB)? Can't my broker do the same favor for me (in my cash account) since they can monitor what my balance (equity) will be at settlement? Aren't these cases (the margin and cash account) the same? What is the difference between the two? As far as I can tell, the only difference is the SEC's idiotic interpretation of an ambiguous regulation. Carl
It is a somewhat ambiguous regulation that is open to interpretation by individual brokers. But most brokers when it comes to regulation tend to play it on the conservative side. So yes they probably could do you that favor but i doubt they would. As far as freeriding goes, that is usually defined as buying a security and holding it overnight then selling it and never paying for the purchase. You are then freeriding for one day (the day after the buy transaction settles).
Freeriding correction. It also applies to buying and selling on the same day and using the process from the sale to initiate another buy. This interpretation is what the NYSE/NASD is using. In a margin account, it isn't a problem.
I don't know of a broker that isn't conservative now in this respect because of the pressure of regulators. It is funny that about this time last year, the SEC/NYSE/NASD started cracking down on interpretations that were more liberal. IB allowed daytrading in a cash account in the summer of 2001. I believe Datek allowed this too, but because of higher forces I don't think they allow daytrading in a cash account anymore. Somebody please correct me if I'm wrong. Thanks for answering all my questions. As you can tell, I am frustrated at the governing bodies in this situation. What I find most irritating is that I used to have this financial freedom but it was taken away from me by an organization that I pay a cut to everyday. Furthermore, at IB now I can't even use my cash once per day. I have to wait 3 days before I can use my own cash. I can't tell you how much I loathe these restrictions - my hatred for them runs deep. I've written the SEC, my senators, and my representative about this issue. I've received a response from one of the senators that they forwarded my complaint to the SEC. The SEC has opted not to respond to anything I send them. So I guess I'm resigned to just bitch on ET just to blow off some steam. Carl
Carl: up unitl 3 weeks (or so) ago Datek allowed daytrading in cash accounts; or at least they allowed me and i doubt i am special. In about 3 or 4 days i will tell you if they still do as I will be returning to them as fast as i can remove my money from IB. btw i just reread this http://www.sec.gov/answers/freeride.htm (hoping that link works dunno what bb code works with ET) but isnt this a good thing: "This means that while you may still trade, you must fully pay for any purchase on the date you trade during the 90-day freeze. In other words, you won't get the benefit of settling your trades in three days." cause to me settling trades in 3 days is bullshit . or at least I am sure not reaping any benefit from it. maybe i need sec logic to see the benefit. *grin*
Trade options. The PDT rules don't seem to apply (at least they haven't at IB). The 3-day settlement is ignored as well as I have been able to execute option buys with cash generated from same day sales (sans short sales).
As of a few days ago, the NASD has apparently told IB that options are governed by the PDT rules. Options settle in 1 day. This, of course, doesn't explain why free-riding is allowed. None of this stuff makes any sense, or is even self-consistent. I wish someone at the NASD, SEC, NYSE, or (G-d help us) the media, would pay attention to what's going on and do something about it. This is really a stupid time to be pissing investors off!