Quote from mskl:
Here is what I have been told:
1) Pattern day traders will have the benefit of PM (Portfolio Margin). Positions that are hedged can always use portfolio margin. Unhedged positions will use normal day trading margin (for equity 4:1) on the day they are transacted.
2) On day two of your positions - all positions can use PM (even speculative)
3) Any new positions for the day that are speculative will use day trading rules. Any fully hedged positions for the day can use portfolio margin
4) Your account will only be frozen if your account is <25 K which is no different than the current day trading rules. But keep in mind that brokers will probably ask for more than $25 K for portfolio margin.
BTW, my broker is requiring $100,000 minimum for this benefit. So - portfolio accounts should NEVER be frozen.
I came very close to setting up a JBO with Goldman years ago - and walked away for a variety of reasons - now with PM - there really is no reason to have a JBO with a BD.
As for the minimum margin per contract difference - that is basically meaningless and will probably never give a person with a JBO a competitive advantage over a customer with PM. Keep in mind what the current margin requirements are for hedged positions now and what they will be in April.
For example - conversion/reconversion positions (Completely hedged) ie long 1,000 IBM, short 10 $95 calls and long 10 $95 puts currently will cost about $50,000 (Reg-T) in margin. Put that trade on in a PM account and it will cost only $750 vs a JBO account: $500. ROE on a 20 lot option trade using the minimum price movement (.01) will result in virtually no difference to a trader using a JBO vs PM - ie it would be beneficial to do the trade regardless. Currently - customers can't comptete on many trades.
Message to all JBO traders: get ready for some more competition come April - especially in the vanilla arb business
A few points here. All portfolio margin accounts under 5 million will be PDT accounts. There is no way around this.
That is a pretty big deal. I don't know any trader that is going to like the fact that he can't actively trade his account.
Also, there is no cross margin for futures in the PM account.
There is no interest paid on net credits or interest on short stock. Pretty big deal.
Also, there are no margin calls in a JBO account. Hello margin call city for you PMers. LOL. In case some of you don't understand haircuts or PM, all PM is a forward margin discount. It converges with Reg T as expiration approaches. Let me explain.
Say you put on a position with a 50k portfolio margin today and expiration is 4 weeks out. And let's say you have 100k in your account. Well, as you approach expiration, that margin is going to explode, as it does in a haircut account. By expiration week, you are going to get a margin call when that margin requirement is now 150k!!!!! what are you going to do? Roll? OK, maybe if it's advantageous to roll. and if it's not? See, that is what a lot of you guys are not understanding, the advantage to the JBO structure is the ability to get around margin! Not to just push it off. In a JBO you can hold positions over haircut. No margin calls.
I was in NY for the expo and I talked to quite a few people about PM and I can tell you after everyone listened to the spiel, the interest was very lukewarm because of the restrictions.
Not to mention the tax benefits to the JBO. The 60/40 tax benefit as well as K-1 treatment.
