def, I am not saying that brokers should find loopholes and I definitely don't think that brokers are happy with this rule. What I am trying to say is that they are pretending as if this rule is just a minor nuisance. This rule will hit the industry where it hurts most - growth. If I was CEO of any of this companies I would have done everything I could to try to prevent this rule or at least to make it less discriminatory. And talking about loopholes - it does exist - and that is by having a professional branch as a part of a firm.
def, T+3 allows cash account transactions to be settled in realtime, T+3 does NOT prohibit transaction settlement in realtime. T+3 was not created for delaying a transaction with 3 days. Although some brokers instead of completing the transaction in realtime, use(abuse) the T+3 as an excuse to keep customers cash for 3 days in their own account free of charge. Keeping customers cash for 3 days free of charge may be a lucrative business, but loss in commissions will probably be greater. It's nice to hear that: "IB has the technology to settle and clear live.". Therefore, IB is capable of realtime updating cash accounts. Then, IB should deposit the proceeds of selling a security in realtime, not hold the cash for 3 days. (There is NO rule: "A broker must not deposit immediately the cash of selling a security , but instead should keep it 3 days in his(brokers') own account" There's no such rule.) To sum up, realtime cash account update is allowed, the technology is there to do it and should be done when possible. Fohat
It seems like Cash accounts with one firm, Cybertrader, have real-time refreshed buying power. Remember that Cash accounts are NOT subject to the $25k Margin account rule. So the trick is to identify brokers that refresh cash accounts' buying power in real-time. What are the implications of this facility at CyberTrader? Take CIEN, which closed today at $17.80. Traders with, say, $20k will not be allowed margin under the new rules, but they can trade 1000 shares of CIEN (value $17,800) as many times as they wish intraday in a CyberTrader CASH Account. From what I gather, they will not be limited to a total value of transactions equal to their account size. They will be allowed an UNLIMITED number of trades within the parameters of their account size so long as they close each position before moving on to the next trade.
Fohat, you clearly don't understand how T+3 settlement works. E.g. if you sell a stock the dollar proceeds of that sale won't be delivered by the counterparty until three days later. The broker is not withholding any cash from the customer's account. If a broker updates an account in realtime and allows immediate reuse of the proceeds of a sale then he is effectively advancing the funds. As for the ability to do T+0 clearing, it doesn't do you any good as long as the whole industry is standardized on T+3 clearing through DTC. Dave
I think this thread is discussing the bottomline critical issue for traders with accounts smaller than $25,000. My current trading account is less than $25,000 and I can survive as a trader without finding a new source of funds if I have immediate clearing after each transaction. I do not have to have margin, but I do need to trade frequently. Here is my question: People on this thread have given their opinions on what the rules/regulations do and do not permit re clearing. (And I GREATLY appreciate those opinions! I cannot emphasize that enough.) But I am wondering who ultimately decides what the regulations permit, or maybe I should word that "How is it decided?" And how do people (brokers, traders, etc.) find out what is officially allowed and disallowed? While I will appreciate answers to my question about who makes the ultimate interpretation, I hope people also will continue to give their own opinions and interpretations of the regulations and rules. It helps me to understand what I am up against.
MichealDay, understood. As for how firms interpret rules. Firms have in house council and may seek external legal opinions as well. Sometimes the regulators issue guidance notes. IB has a former CFTC legal head as in house council for starters. I haven't been involved in the discussions internally so I do not know how IB's interpretations were developed. As for real time update of purchasing power, IB was doing this previously. My understanding of a true cash account would mean that this would not be allowed with the new rules. However, if Cyber interprets things differently and does it successfully, I am sure other firms will follow. Cyber is owned by Schwab and surely must have more political clout than IB. Hopefully they will be allowed to do this.
dlincke, you clearly don't understand what T+3 is. I've already posted SEC link on this thread explaining what T+3 is: This should clarify T+3. Indeed, in this case, the counterparty broker holds the sale proceeds for three days i.e. the broker is witholding the customer proceeds of that sale for 3 days. T+3 does not postpone or restrict transactions only until three days later.(as you wrongfully assume) There's NO rule that your or counterparty broker must keep the proceeds of the sale in his account for 3 days, and only after that deposit them to the customer account, which sold the securities. T+3 was not created for delaying a transaction with 3 days. T+3 includes T+0 settled transactions. T+0 will do a lot of good because it'll effectively stop a third party from holding the proceeds of a transaction for 3 days. As for realtime update and immediate reuse of a proceeds of a sale in a cash account, Cybertrader already offers that: Candletrader wrote: "It seems like Cash accounts with one firm, Cybertrader, have real-time refreshed buying power. Remember that Cash accounts are NOT subject to the $25k Margin account rule." Magna wrote: "That's true with CyberTrader and it's a very nice feature of their cash accounts. While there is still a 3-day settlement rule limiting withdrawals from cash accounts, you can daytrade them to your heart's content with realtime refresh." The new rules are margin rules and affect margin accounts only. The new rules don't affect cash accounts. Cybertrader has found and already implemeted an excellent solution for the cash account issue, and will probably keep all its' daytraders with <25k accounts. While other brokers with poor rule interpretation are implementing even more restrictions on cash accounts. Cybetrader has allowed and implemented all the issues I was arguing are allowed for a cash account by the rules, and what daytraders with <25k are looking for. Cybertrader is live proof that my cash account rules analysis is correct. More brokers will follow Cybertrader with a good solution for daytraders with less than 25k cash accounts. I hope IB will be one of them. Fohat
Fohat- Respectfully, the one thing not mentioned and IMHO one of the most crucial, is commission costs. How can a trader be profitable if he's under 25k when a roundtrip will cost at least 20.00 to execute compared to .01 per share at I.B.? Naturally if you're under-funded, share size must be decreased which in turn is gonna throw off your gains x commissions ratio towards a more negative return on investment. Don't get me wrong, I'm sure it can be done. I just don't know how! (lol) And lets not forget the little issue of shorting in a non-margined account
I looked at the cyber agreements and this is part of their cash account agreement. " NOTE: Buying Power in a cash account is the free cash in the account. As such they can incur day trade definition margin calls. Since most cash accounts are retirement accounts limiting the ability to deposit money into the account to satisfy margin calls, it is imperative you understand how to avoid day trade definition calls. " how would you interpret this?
Def, thanks for the explanation re who interprets SEC rules/regulations. It sounds like each brokerage is responsible for doing its own interpretation in conjunction with guidance from SEC in some cases. That explains why differing opinions exist at this late stage of implementation. Fohat, your atatement that T+0 is included within the T+3 reg, and that counterparties do not have to hold customers' funds for 3 days is a KEY contribution to this discussion. Great insight! Just because T+3 is the current industry standard does not mean it can't be changed or that it shouldn't be changed. The first step is to recognize that it can be changed. The second step is to recognize that it can be changed under existing rules and regulations. Those two steps are your contribution. I especially appreciate your "outside-the-box" thinking because I tend to think "inside-the-box," and would probably have accepted T+3 as given for eternity.