Meant to mention that Ameritrade support reps told me that I can trade my cash account as frequently as I want, I just can't withdraw funds from sales that have not been settled.
Def, I believe that the "free cash" is the cash in the account not tied up in trades. Once all trades have been closed (I am assuming the user is an intraday trader), all cash funds are available for intraday re-use as many times as the trader wishes. Should the trader with $20k put on one trade of $15k and then put on another one of $18k without closing the first trade, he will be subject to a margin call. Should the $15k transaction be closed prior to the $18k transaction, no margin call will be made. Although I have much more than $25k, I have made enquiries with cyber as to their stance on Cash accounts and frequent intraday trading (since I have accounts with several brokers and am moving cash around quite a bit, I wanted to make sure that I would never fall foul of the rules). Cyber confirmed that the new rules apply to Margin accounts only, and that their Cash accounts will continue to operate as they always have in the past i.e. they have a real-time cash balance updating facility. Def, given that people with less than $25k would not find it too viable to trade with Cyber's highish commissions, you may wish to look into whether IB (of which I believe you are an employee) will rise to the challenge and provide the real-time buying power facility for cash accounts, so that IB does not lose its significant base of smaller traders to CyberTrader or elsewhere.
candle, that's pretty much why i made the post. being overseas i haven't been part of any discusions on the upcoming rules. However, if precedent is set by other brokerages i will attempt to make an argument to change the policy. fast/fohat. i'm not brushed up on US security settlement but i still don't see how you can have T+0 settlement without the counter party delivering the stock on T+0. I don't think it has anything to do with the brokers holding the funds. Funds are delivered to the clearing house when the clearing house demands them. Here's a scenario. A buys stock from B. A then sells to C then buys from D etc. If B fails to deliver then A can't deliver to C and so on. You can see how it can become a mess taken to a few more degrees. In any event, I personally hope 0 day clearing is allowed as the smaller traders could use every break they can get.
Def, Like you, I "don't see how you can have T+0 settlement without the counter party delivering the stock on T+0." We are in agreement there. That is not the issue for me, rather it is: "CAN counter parties deliver the stock in T+0?" One of Fohat's contribution's to this discussion is his point that SEC regs/rules are not a barrier to T+O. That is, in answering the question, "CAN counter parties deliver the stock in T+0?" we cannot say, "No, they can't, because it is not permitted by SEC regs/rules." I have a similar response to your statement that "Funds are delivered to the clearing house when the clearing house demands them." The issue for me is "CAN the clearing house demand them earlier than T+3? CAN it demand them in T+0?" I haven't heard anything to suggest that they cannot demand them in T+0 other than the argument that T+3 is current industry standard. IF the clearing house can demand T+0 fund delivery, then your scenario becomes: A buys stock from B and gets T+0 delivery. A then sells to C ...." As yet, no one has raised the issue of the administrative and technological hassle to implement T+0 (I suspect it would be large), but that has not been the question on this tread. (People have raised the political issue of whether brokerages would favor the change.) Thanks for saying you personally hope 0 day clearing is allowed. I agree with you that we smaller traders can use every break we can get.
Fohat, what you still don't seem to understand is that this is not about what the rules allow or don't allow but about standard industry practice. Virtually all US equity trades are settled by NSCC, a subsidiary of DTC. NSCC nets clearing firms'/brokers' transactions into one position per issue, then interposes itself in the middle of each net transaction. This ensures that as many transactions as possible can be dealt with through firms' internal accounting and as few funds and securities as possible actually have to be transferred between firms. In addition NSCC eliminates uncertainty in the marketplace by guaranteeing the financial settlement of transactions which eliminates default risk in the event that one party to a transaction becomes insolvent. All this can only be carried out if all participants agree on a common process time schedule, which currently is T+3. There are in fact plans to convert to T+0 settlement in the future, but this is a massive industrywide effort that will require a simultaneous coordinated changeover by all clearing firms and is still a few years from implementation. Now as far as realtime "time and tick" accounting and updating of buying power of cash account balances is concerned that's a totally different matter and has no direct connection with settlement. Dave
If (and there seems to be little doubt) other major brokerages are allowing instant crediting of sales to cash accounts, then either they are in violation, or IB is using a flawed interpretation of the law. Since they are limiting the trading their customers can do, they are hurting their own bottom line. I would suggest IB make CERTAIN that the change they just instituted is really necessary, and not just take the path of least resistance.
I was getting ready to ask if there was something like this out there. This is the way the Federal Reserve System works with interbank crediting of funds as well. There isn't much cash flying around out there...more like IOU's that settle up. This makes it seem more like something technology may be able to address going forward. Nice post.
I have heard back from IB and they feel that we have a point. I hope Fohat doesnt mind, but I used part of his arguement in addressing the issue. The following is the answer I received from IB: Thank you for bringing this up. I believe you are right on this issue. I will bring this issue to the attention of our management. Should you require further information, please do not hesitate to contact us. Sincerely, Edmond Lo Interactive Brokers Hope we get some action soon! TWENDE
Why the change in IB cash accounts? There is nothing in the wording from the SEC regarding cash accounts. They only talk about MARGIN accounts. IB! Leave the cash accounts alone. Just my 2 cents