I don't think they lied, so much as they were probably reminded by the SEC that they were violating the law. This clarification happened way back when the PDT rules went into effect. I remember that a bunch of people bitched when IB implemented it back then, claiming that other firms were still allowing them to immediately re-use proceeds in cash accounts, or re-use them the next day. If I remember correctly, AMTD was subsequently fined for it, and a number of other firms quickly changed their policies. The fact that some firms did not, and have not been caught after all this time, points out just how worthless SEC enforcement is.
The actual Reg T rules for cash accounts are relatively subtle. They prohibit buying, selling, and then buying again using the same funds before the original purchase has settled. The sale does not have to settle before the funds can be used. You can buy and sell on the same day, then use those funds three days later. You can buy, sell three days later, and then buy again immediately, even though the sale has not cleared. The only requirement is that you do not make more than one purchase with the same funds before the first purchase has settled. If you do, it is called a free riding violation and results in a 60 day restriction on your account. Various brokers implement this rule in different ways. Many brokers, including Interactive Brokers and BrownCo, incorrectly require all transactions to settle in cash accounts, not just purchases. Some brokers have been caught allowing their customers to violate Reg T entirely. A few brokers, including Fidelity and FOLIOfn, correctly implement the Reg T requirements without enforcing additional and unnecessary house requirements on cash settlement. Martin
BrownCo lied. They originally claimed that their change in policy was forced by a recent change in SEC interpretation of Reg T. There was no such change. BrownCo chose to implement a rule that was stricter than Reg T, blamed the SEC for the change, and later admitted that it was strictly an internal policy decision based on shortcomings in their software. The thread over on Motley Fool has all the details. Martin
When I read the Reg T rules, I do not see why buying/selling and then using the proceeds from that sale to buy again on the same day is prohibited as long as you have the cash on hand at your brokerage to start with. I can see why the rule is needed if people need to deliver cash by the settlement date to clear the trade. But if the cash is there to start with, and you read Reg T, it makes no sense to not be able to daytrade a cash account. From the SEC webpage: Frankly I don't see how their incorrect interpretation of Reg T protects me. In fact, it harms me by limiting what I can do at any point in time. Thanks for nothing.
Here's my experience, for what it's worth. I started what I believed to be a day trading account in Jan 2004. I got slapped with a margin call because my account had at least seven trades the first day. I was told that I needed to put in an additional $5k to bring the total to $25 K. From then on I got no hassel from them, and continued to trade, up to about $2milllion per month. Also, my margin requirement went from 50% to 25%, which became super leverage. As far as I can tell, the 3 day requirement is for longer term accounts, such as cash, Roth's, IRA's etc. Also, my SEP (SEP =small business 401k) broker said it was fine to sell a stock, and immediately buy another, since the three day requirement was met by each transaction. But I believe that there's to be no furher trading in that SEP account.