New Daytrading rule in September 01'

Originally posted by Yoda
Zboy, is there anyone of power who can legally challenge them?
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Well, it depends. The SEC is an appointed commission (I believe), so the only people who could have had influence are members of Congress (by the way, wouldn't that word equal the opposite of Progress?). Since the rule has already been proposed and passed, the only thing that could be done would be to collectively contact your senators and congressmen and ask them to impress upon the SEC to repeal the rule. However, it's a longshot at this point.

My feeling is that the only way the SEC will move to repeal the rule is if they see that liquidity in the market dries up substantially (very possible) and that there is a large increase in the number of daytraders who have borrowed money to meet the $25K minimum and get into more trouble, especially with the 4 to 1 margin. I think there could be a possibility that this claim to "protect traders" could blow up in the SEC's face. We'll see.
 
"Margin Rule Changes"

"Earlier this year, the NASD and SEC announced they will be making changes to the Margin Rules for day traders, and that the rule changes would take effect in late September. Now it turns out that the rule changes will be taking effect earlier than expected."

"Starting Monday, August 27, 2001 the following margin rules will apply to all day trading margin accounts:"

etc (here's the link)...

http://www.protrader.com/nl/07022001c.html
 
For some additional clarification regards the new "$25k" rule:

The following is a question from a customer of IB and a response from the Chairman of IB. This is posted on the IB Web Site: http://www.interactivebrokers.com/html/email/answers/dayTradingRules.html

Q: How will the new rules being imposed by the SROs impact frequent trading?


A: When an account has less than US $25,000 balance, it will not be able to open more than three positions, in stocks only, in any 5 day period. They may trade futures and options or foreign stocks as they please.

- Thomas Peterffy, Chairman, Interactive Brokers Group (7/12/2001)
 
What is this joke? You can't open more than 3 positions in a 5 day period?!!! (and what does SRO stand for BTW?) This is nonsense since even a long term investor could not even buy 3 stocks in a 5 day period!

Please Def, or anybody who knows, tell me this is incorrect.
Thanks
 
The IB statement seems to imply that ALL under $25K accounts will be restricted to three trades in any 5 day period. However, the SEC SRO clearly states that such restriction is only to be placed on Pattern Daytraders (ie. in and out the same day). How does this change affect those who have under $25K acounts but do not exit their positions the same day, eg. multi-day swing traders?

Would appreciate some advice from Def and others on this matter. Thanks.
 
This has to be a mistake, why would they go with such an absurd interpretation of the new SEC rule? This would mean thousands of customers closing their account( why bother with EDAT if you are going to be a position trader and you can have better services with an online broker?! In this case I 'd rather have checking, interest paid on my cash balance and better customer service at Datek for instance ) The growth of EDAT in which many firms have poured a lot of money would come to a standstill before many simply go out of business.
 
The Terra Nova Investor product might be the way to go.

If you are an EDAT firm, then you must take steps to assure not to cross the line. That is why they will put absurd limits right off the bat.

Time to shop for anew broker.

Bill
 
The real question certainly is how <25K accounts will be handled by the BDs. Several folks made the point that T+3 may inhibit day trading in these accounts completely. Haven't seen that play out yet in the releases coming from the BDs.

I can tell you that there is a consensus from those in the industry who don't have anything to lose (vs those who have to "talk their positions") that this rule will trigger a major wave of closures at the EDTs. There is just nothing to keep sustaining their growth. Think the good ones and the cheap ones will survive (like IB), but trading expos in the future will have a much harder time filling up their exhibitor halls.

It's funny. We went through a phase marked by increased access to the markets and the collapse of the middleman. But I keep wondering if the middleman will have the last laugh. It really looks like we are headed back to a 1995 trading environment for the masses.
 
Perhaps the "good" Ed J. Nicoll (CEO of the SEC) has spoken with the "good" Alan which he has promised to help him to make to return the Naz to levels more "interpretable" and not "mined" from the so many paradoxes (in terms of trading) created in these last times of TOL's boom.
From the "high" of their experience in subject they hold to give more stabilities to the market forcing those people, that have less than $25K on the account, to hold the positions for more time giving less volatiliy to the titles.

A hug.

;) Lars ;)
 
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