Wash trades - legality?

Discussion in 'Professional Trading' started by Sparohok, Feb 28, 2006.

  1. Say I want to use a wash trade to move a position from one account to another. I'll sell in one brokerage account and buy in the other at the same time. I'm not worried about tax consequences, just legality. Am I asking for trouble?

    I know using wash trades to "paint the tape" is illegal. But, that's clearly not what I'm doing. Is any wash trade illegal by definition or only when it is part of a pattern of manipulation?

  2. you can wash trade all day but you can't claim the tax benefit. Wash sale rule is an IRS section code law. The SEC isn't going to send you to jail for it. Your brokerage firm (depending on your designation) may not want you trading against yourself by using a different account though.
  3. Htrader

    Htrader Guest

    Be careful, all wash trades are illegal. Don't confush a "wash sale", which has to do with taxes, with a "wash trade" which I assume you are talking about.

    Regardless of intent, the SEC deems that "any ficticious and non-bona fide transactions that do not result in a change of ownership are illegal."

    Honestly, if you do a wash trade between two separate brokerages, no one is going to find out. But I certainly would not recommend it as regular means of transferring stock.

    Occassionally due to keystroke error, I will cross stock with myself in my brokerage account. The few times this has happened, I have always received an email the next day from the compliance department asking for an explanation.
  4. Its been tried and its been caught. Occasionally the NASD web site news stories will carry enjoyable reading about the creative ways manipulators try to do this, and how they got caught.:p
  5. Your right I was thinking and reading wash sale not wash trade my brain just skipped and replaced trade with sale.

    Wash trading is not something that the brokers look nicely upon. If you read your terms and agreements from your broker it will probably state that it is not allowed.
  6. range


    The problem is "at the same time". If the sale and the buy are sufficiently distant in time, it should not be a problem. Whether that is a month, or a week, or a day, or an hour, etc., I don't know.
  7. This is a snipit from the SEC web site that uses the proper language and briefly describes the procedure.

    Wash Sale Activity

    19. Between January, 2000 and April, 2001, Lee systematically manipulated the shares of various publicly traded issuers by engaging in numerous large wash sale transactions, placing corresponding buy and sell orders for identical or substantially identical amounts of a particular security at the same price at or about the same time.

    20. In each of these wash sale transactions, Lee owned the shares that he bought and sold and there was no change of beneficial ownership as a result of the transactions. The scheme was designed to create the appearance of an active and rising market and enable Lee to profit by selling shares he had previously acquired at regular, lower, market prices.

    21. By engaging in these fraudulent wash sales, Lee compromised the integrity of the market by creating the appearance of genuine trading activity for the securities in which he transacted. In fact, Lee's wash sale activity usually accounted for the majority of shares traded, in the issuer he targeted, during any given after-hours trading session.
  8. Assume one had a short position in one account and a long position in another account (same stock), can he trade those positions against each other? Or he have to deliver the certificate from one account to another to cover the short position?
  9. Delivering a certificate for a short? LOL, that practice has been dead for a while now.

  10. Can the person trade two accounts to cover the short position? Is that a wash trade?
    #10     Feb 28, 2006