IB: The Party Is Over

BSAM - can only agree. Many daytraders are still trading Nasdaq stocks and the new rule hasn't been imposed yet for them.

We'll have a better picture on the effect of this rule for Nasdaq and brokers by end of September ( unless the NAZ is down at zero anyway until then :rolleyes: )

From what I can read these days on some european trading-boards, this rule could have nasty effects on certain Nasdaq-stocks, since many european traders started to daytrade them in the last 2 years with comparably small accounts. ( compared to the 25K minimum required as of Sept. 28th ).
If they don't find a way to circumvent those rules, they might just simply withdraw their money from the US market and start trading options or NEMAX 50 futures, thereby eliminating the currency risk.
 
privateer think again

IB imposed "The rule" already as of August ,28 .

I don't quite understand that ,why???
If the SEC imposed NASDAQ RULE as of Sept,28 why Ib is introducing it one onth earlier :mad:

Angela
 
Originally posted by akhuto
privateer think again

IB imposed "The rule" already as of August ,28 .

I don't quite understand that ,why???
If the SEC imposed NASDAQ RULE as of Sept,28 why Ib is introducing it one onth earlier :mad:

Angela
More...

They don't enforce the rule on Nasdaq stocks until Sept. 28. Trade away!
 
:D

I humbly apologize :o

I guess I misread my email .I will check that out.

thanks for the info.

The funny thing is that I mailed my check and will be available in my account on sept,5 .
since I thought that the date was august,28 ,I did't short from that date :( until today

I missed out alot

Angela.
 
I wonder if some people have actually read the new rules and their history before voicing their opinions. Let me correct some misimpressions.

1 This rule did not originate from the SEC. They promulgated the regulation at the specific request of the National Association of Securities Dealers, who asked for the rule because they were worried about small accounts being able to cover their losses and exposing the brokers to risk. It has nothing to do with protecting small investors from themselves in some paternalistic manner.

2. The 4:1 margin is available only intraday from any broker except those that require traders to become professionals by passing exams. Margin must be reduced to 2:1 overnight. Therefore the suggestion that IB should offer 4:1 intraday and only 2:1 overnight as a compromise is redundant, as they couldn't offer any more even if they wanted to.

3. The rule became effective for listed stocks last week and affects Nasdaq stocks in September, so IB had to take some action when they did.

Don't ask me to defend or explain any of the above. Go to the SEC website and do your own research like I did. You've got to know the rules to play the game and the best way to know the rules is to read them yourself.

One other thing to think of. If you carry any positions overnight, you may only margin 4:1 on your day trading buying power, not 4:1 on your account equity. If you are not aware of this and your broker does not have systems in place to prevent you from exceeding it you could be liable for a margin call based on the entire cost of all your day trades. IB's limit of 2:1 margin provides you with some cushion against this eventuality.
 
A customer will be deemed a "Pattern Day Trader" when they make more than 3 day trades (open and close a position on the same day) within 5 business days.

As of September 28, 2001, "Pattern Day Traders" with greater than $25,000 in equity will only be subject to a 25% margin requirement during normal market hours. On each day at 3:55 ET the regular maintenance margin requirement of 30% will go into effect until normal market hours resume the next business day, at which time it will again drop to 25%. These customers will continue to be defined as "Pattern Day Traders" for a year
after they are last put into this category.

"Pattern Day Traders" with less than $25,000 in equity will not be able to open any new positions at any time subsequent to having bought and sold the same stock on the same day three times with the last five business days. These customers will continue to be defined as "Pattern Day Traders" until less than 3 day trades are made within the last 5 business days.

Cash accounts will not be able to use sales proceeds for new purchases until the third business day following the sale.

IB has implemented these new "Day Trading" rules as dictated by the NYSE and NASD, but due to the complexity of the rules there is much confusion within the trading community. We have spoken directly with NYSE and NASD personnel in an attempt to clarify the facts, and have been advised that the NYSE will issue written clarification in the near future. The following represents a summary of the advice we have received:

NYSE Interpretation 220.8 (c)/13 states that "Day Trading and Free Riding in a Cash Account are not permitted under Regulation T".

Customers with less than the $25,000 "Pattern Day Trader" minimum equity requirement may not trade on an unlimited cash basis in a margin account by receiving credit that day for the proceeds from the sale of stock ('instantaneous credit"), but, rather, must wait for the settlement date to receive credit for the
proceeds from the sale of stock.

The date of implementation of the "Pattern Day Trading" rules depends upon which regulatory organization the firm is a member of. Since IB is a member of the NYSE, it was required to comply with the NYSE's August 28, 2001 implementation date. Firms, which are a member of the NASD, and not the NYSE, must comply with the NASD's September 28, 2001 implementation date.

Day Trading rules apply to all US Exchanges and ECNs.
 
IB seems to be claiming that their new handling of cash accounts is a requirement:

... Cash accounts will not be able to use sales proceeds for new
... purchases until the third business day following the sale.

Everywhere else I've checked it seems that this is an option left up to the discretion of the brokerage.

So it looks like IB is up to something ...

Any suggestions for alternative brokers, since IB doesn't seem to want our business anymore?

Is Tradescape any good?


Thanks

Richard
 
rfoulk,
i don't see how you can claim IB doesn't want you business.

First: it states 25% margin after sept 28. In my book that's 4:1.

Second: it states that it is regulated by NYSE rules. The other brokers may not be. However, it is waiting for a guidance paper from the NYSE moving on.

Time is needed for the dust to settle.
 
Originally posted by dufferdon

This rule did not originate from the SEC. They promulgated the regulation at the specific request of the National Association of Securities Dealers, who asked for the rule because they were worried about small accounts being able to cover their losses and exposing the brokers to risk. It has nothing to do with protecting small investors from themselves in some paternalistic manner.


"The proposals are advanced ostensibly to 'protect the safety and soundness of member firms and ensure the overall financial well-being of the securities markets.' There is, however, no record to suggest that the market is imperiled by day-traders. THE SAFETY AND SOUNDNESS OF THE SECURITIES INDUSTRY ARE NOT FINANCIALLY THREATENED BY ACTIVE ACCOUNTS MAINTAINING SMALL EQUITY BALANCES. The proposals are not supported by any published findings of systemic problems involving accounts with margin loans under $25,000 at true day-trading firms (as understood in the context of proposed NASD Rule 2360), electronic brokerage firms or full service firms.

The genuine market-wide issue has not been day-trading. Rather, it has been the effect of heightened volatility in segments of the NASDAQ market upon firms' exposure to customer margin loans. On this topic, online firms have responsibly and repeatedly increased house initial and maintenance margin requirements beyond the minimum levels of NASD Rule 2520. Member firms' self-interest has been proved again to be superior to any rulebook solution. In sum, the "safety and soundness of member firms" do not require these changes in the margin rules."

-Edward J. Nicoll
Chairman and CEO

Datek online holdings corp. in a response to the proposed admendments to NASD rule 2520.
 
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