New Daytrading rule in September 01'

Discussion in 'Trading' started by huby, Jun 19, 2001.

  1. huby


    I know this subject has been spoken of before here but I can't find the info I'm looking for. Here's how I understand the new SEC rule. Please clarify if I'm mistaken.

    Accounts under $25,000 which trade more than 4 round trip tickets in any one week will be marked as a "daytrading" account and will no longer be allowed to use margin. (Surely you can trade as often as you like with your own money--right? You just can't use your brokers?)

    Now here's the part that I'm confused about. If your account is over $25,000 you'll get double margin. Or 4 to 1 versus the current 2 to 1. Is this correct? If so are there any stipulations? What happens if your account dips below $25k and then goes back up?

    Any info on this subject would be appreciated.
  2. aura0663


    As I understand it, you will in fact be able to trade 4:1. This sounds incredible, since I only trade daily-flat at close/short term swing at longest/margin not really an issue. Although I'm not clear on it, as you are , if you dip below 25k there is some penalty- no margin/till when ?
    For anyone trading in the 25k range this seems like an important issue. If you dip below 25k for a day are you penalized for what period of time? Perspiring minds want to know.
  3. So am I correct in believing that if you have less than
    25K in your trading account you can still daytrade? But
    you will be restricted to using a cash account and
    not be able to use margin?

  4. tiki


    Let me get this straight- you are saying that beginning sometime in Sept '01 that daytraders with accounts below $25,000 CAN'T USE MARGIN? You will either have to use your cash only, or bump your account up to $25k+?

    Is this TRUE? What is the logic there?
  5. guidodf


    From what I remember (I may well be wrong here) the rule will go into effect september 28.
    From what I understood (I may be even wronger here, and I hope I am), a pattern daytrader with less than 25K in his/her account will not be allowed to daytrade anymore - full stop.

    Am I right? Am I wrong (I hope so)? Anyone with a clearer idea of the whole matter waqnting to step in and clarify once and for all the matter?

    Def, I understand tha IB's policy regarding this new rule may be a confidential / not yet decided issue, but if you have anything to say, either personally or on behalf of IB, please share it with us.

  6. tiki


    goog god- let's hope you're wrong-

    that's just ridiculous! Isn't this *America*?
  7. Lancer


    Rule Summary:

    Recently, the SEC approved a number of sweeping changes to the margin rules applied to day trading. These rule changes, which are set to become effective on September 28, 2001, will, among other things:

    • Define for the first time who is considered a "day trader"
    Under the rule changes, a "pattern day trader" is a customer who day trades four or more times in five business days, and such activity is more than six percent of that customer's total trading activity for the five-day period.

    • Increase day trading buying power The rule changes limit day trading buying power to four times the day trader's maintenance margin excess. This is an increase from the current two times maintenance margin excess.

    • Set a minimum equity requirement for day traders The rule changes will require that a pattern day trader have deposited in his or her account minimum equity of $25,000 on any day in which the customer day trades.

    • Prohibit the use of cross guarantees Pattern day traders will not be permitted to meet day trading margin requirements through the use of cross guarantees.

    • Place additional restrictions on accounts that have generated a day trading margin call The rule changes will require that these accounts be restricted to day trading buying power of two times the maintenance margin excess until the call is met.

    • Two-day holding period requirement Funds used to meet a day trading margin call must remain in the customer's account for two business days following the close of business on any day when the deposit is required.

    • Change the rule for overnight holds The rule changes will treat the sale of an overnight position as a liquidation and the subsequent repurchase as the establishment of a new position not subject to the rules affecting day trades. In other words, the sale and repurchase on the same day of a position held overnight will not be treated as a day trade.

  8. tiki


    I just found this info at

    New NASD/SEC Rules Affecting Short-Term Trading

    The rule change will affect day traders. The rule defines a “day trader” as someone who buys and sells a stock in one day (known as a “round trip”) four or more times over a five-day period, unless those trades comprise less than 6% of the trader’s total trades. So if you make 4 or more day trades over a five-day period and these trades represent more than 6% of all your trades, this rule affects you.

    · Day Trading Buying Power will be increased from 2-to-1 up to 4-to-1. So you’ll be able to buy up to four times the amount of excess equity in your account. This is a dramatic increase in buying power for day traders!

    · The rule will require an increase in the Day Trading Minimum Equity Requirement. You will need to maintain at least $25,000 equity in your account in order to day trade.

    · The due date for day trading margin calls will become 5 business days, instead of 7 business days.

    · Money deposited into an account to meet a day trading margin call would have to remain in the account for at least two days (rather than the current one day) after the close of business the day the deposit is made.

    · If you have a day trading call that has not yet been met, your account is restricted to 2-to-1 Day Trading Buying Power based upon your total trading commitment until the call is covered. Also, the call for that day is not calculated based on Time & Tick. That means you would be responsible for 50% of all your entry positions added together.

    · The sale of an overnight long position, or the repurchase of an overnight short position would not be considered an entry position, so long as you did not add to that overnight position first (e.g. you are long XYZ overnight and then buy more shares of XYZ before selling XYZ – that would be considered an entry position because you bought more shares before selling).

    · Day traders cannot use guarantees between customer accounts at the same broker-dealer (a.k.a. Cross-Guarantees) to meet the Day Trading Minimum Equity Requirement or Day Trading Margin. So a day trader cannot avoid a margin call by having guarantees from the accounts of other customers at a broker-dealer. Each day trading account would be required to meet its margin and equity requirements independently by using funds on deposit in that account.


    I can't believe this- now I need a $25,000 ACCOUNT JUST TO DAYTRADE?!?!?!!?!?!!?!!
  9. tiki


  10. To clarify a little further, to my knowledge you would be able to daytrade with less than 25K if you have a cash only account. You will be required to have at least 25K if you are a daytrader and have a margin enabled account (even if you never use that margin). However, to daytrade in a cash only account is like running on one leg, since that automatically prevents being able to short stocks (shorting can only be done in margin accounts, not cash only). It's quite a blow to many beginning traders, and it scares me because where does it stop? Who's to say that the SEC won't arbitrarily decide down the road that one must have $100,000 in their account to daytrade, etc.? It reminds me of the parable where they came to take away this group of people and I said nothing; then they came to take away that group of people and still I said nothing; finally they came to take me and there was no one left to speak out for me.
    #10     Jun 20, 2001