New Daytrading rule in September 01'

Filing a lawsuit or even talking about filing a lawsuit is a waste of time and energy. Anyone who cannot come up with $25,000 risk capital might be better advised to use his time studying the markets and save his money for trading rather than spending it on a legal action that will likely go nowhere.

To begin with, no plaintiff's lawyer is going to take this on because there is no money in it. Yes, you and other small account holders like you will be adversely affected by the new rule. But what are your ACTUAL money damages? Nothing. Where's the possibility of a big pay day to entice any lawyer to take this case?

Okay, for the sake of argument, let's say you find a willing lawyer with a lot of free time on his hands. What's your legal argument? You will be challenging the federal government's power to regulate in this area, so you could argue under either the Due Process or Equal Protection clauses that the government is limiting your freedom without due process or discriminating unfairly against the under-$25,000 account holders. I'm not a constitutional lawyer, but I can assure you that there is no fundamental right to day trade. The new margin rule is a plain vanilla economic regulation and will therefore be presumed to be constitutional. This means that you, the plaintiff, will have the burden of showing that the rule is completely irrational and serves no legitimate regulatory purpose. As the old saying goes: Dream on.

Here's the bottom line. The new margin rule will be going into effect shortly; the time to voice opposition to it has long passed. For people who have the threshold $25,000, the rule is very favorable. For those who will be adversely affected by the rule, you can take advantage of the new rule once you build up your account to the $25,000 minimum or explore the various alternative ways to day trade as discussed many times on this site. To me, an interesting question that hasn't been given adequate consideration is how the trading of single stock futures will interact with the new margin rule. But that is a topic for another day and probably deserves its own thread.
 
"I'm not a constitutional lawyer, but I can assure you that there is no fundamental right to day trade. "

But in what is supposed to be a free market the SEC is imposing arbitrary restrictions on when you can sell property you own. I would guess it would be pretty easy to find a judge who agrees that limiting when you can buy and sell your property on the open market based on how much money you have is a clear violation of our constitutional rights. The ruling will take effect in a matter of weeks, so I must agree there's not much we can do now. The best one could hope for would be for a judge to issue a stay, but based on the total lack of press that I've seen or heard on the issue, the chances are slim to none.

truthfultrader
 
Huh? If an individual with less than $25k in their account opens a position in the morning and an analyst downgrades it a half hour later, the individual would not be able to sell until the following day. That is a restriction on selling, plain and simple and an arbitrary restriction on what should be an open market.

truthfultrader
 
I agree the this would not be a financially rewarding case for anyone. This is a matter of principle and nothing more. It will not affect me as I'm fully funded well beyond 25K, but I remember a time when that was not the case. The only party I had to deal with was my broker. If I didn't like his policies, I was free to choose another. While a good bit of discussion has been carried here on the merits of those with under 25K having cause to "daytrade" in the first place, to tell them they aren't allowed (by the SEC) seems unbelievable to me.

I don't have an opinion one way or the other on how much one should start with and what's appropriate. If I walk into a casino, no one is checking my cash-on-hand to be sure I have enough to be "qualified" to play. IMO, if a brokerage wishes to set these rules, that's fine. I believe this sets a bad precedent and I wonder what's next. The SEC is supposed to protect consumers/investors...the brokerages can generally take care of themselves. I am wondering who is supposed to receive additional benefit or protection from this???

By the way, I have a Brown Account and they are beginning to send notices about the new rule. I haven't called them to confirm this...but the notice certainly implies that ALL accounts will receive 4:1 margin. I've read both on this board and also read the original SEC float and can't make heads or tails of it.

I also read the comments on the proposal on the SEC site from interested parties over the past year and a half. It was interesting to see the overwhelmingly negative comments from a large number of prominent folks almost without exception. Although it's good that these folks are on the record, the comments seem to have had no effect.

 
truthfultrader:

Evidently you misunderstood the point of that sentence. But I take some blame for your confusion. It would have been clearer for me to say "It doesn't take a constitutional lawyer . . . ."

In any case, let me return the favor by quoting you.

I would guess it would be pretty easy to find a judge who agrees that limiting when you can buy and sell your property on the open market based on how much money you have is a clear violation of our constitutional rights.
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Let's deal with reality. First, the new rule restricts the use of margin for pattern day traders; it has nothing to do with limiting "when" you can buy and sell. If your account is under $25,000 and you violate the rule, you get a margin call. If you meet the margin call, everything is peachy and you're free to violate the rule again. If you can't or choose not to meet the margin call, your broker is compelled to take away your margin, but otherwise you can buy and sell to your heart's content.

Second, which constitutional right and body of law are you saying is being violated? Perhaps you would like to make the case to the judge that the regulation violates your right to the pursuit of happiness? Come back to reality. My point is let's not make a federal case out of the rule. Just trade, baby!
 
Icarus,

The margin call stuff is probably true, but no, the rule is not limited to a margin call. You are wrong. The rule says that if you have less than 25K and buy/sell a property (stock) intraday for the 4th time in a 5 day moving period, you are in SEC violation and your account will be frozen for 90 days. Frozen means no buying or selling in the account.

Wet
 
Originally posted by Wet
You are wrong. The rule says that if you have less than 25K and buy/sell a property (stock) intraday for the 4th time in a 5 day moving period, you are in SEC violation and your account will be frozen for 90 days. Frozen means no buying or selling in the account.
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Wet:

I've been known to be wrong before, and I will be again, but you should try actually reading the law before you start mistaking your ignorance for knowledge. Get a copy of the Federal Register (March 6, 2001) and read the actual regulation.

Why is this so hard? I am not giving legal advice here, but I will offer my interpretation of the regulation.

FOUR OR MORE DAY TRADES WITHIN FIVE BUSINESS DAYS--This is a definitional rule. Except for a small exception, anyone who makes four or more day trades within five business days is defined as a "Pattern Day Trader."

DAY TRADING MINIMUM EQUITY REQUIREMENT--A Pattern Day Trader must maintain minimum equity of $25,000 to have a margin account. If this margin account falls below the $25,000 minimum, the account will be restricted from day trades until the $25,000 minimum is satisfied.

TIME TO MEET MARGIN CALLS--A Pattern Day Trader has five business days to meet a maintenance margin call. If a Pattern Day Trader fails to meet a day trading margin call within the five business days, he will be restricted to executing transactions on a cash available basis for 90 days or until he meets the day trading margin call.

I think those are the pertinent sections for this discussion. Where are the references to "frozen" accounts and the trader being prevented from buying or selling for 90 days? There are none. Some of the posters here are doing a disservice by spreading false information in a public forum.

In any case, read the regulation yourself. Again, this is not a legal opinion. If you want a legal opinion to rely on, hire an attorney.

 
"Second, which constitutional right and body of law are you saying is being violated?"

If the right to sell ones property is considered a fundamental right then a case could be made that the regulation violates substantive due process.

Because the regulation is based (IMO) solely on the premise that either 1) Daytraders with more than $25k are more likely to be successful traders or 2) Daytraders with more than $25k can afford to lose more money than those without; equal protection could also be applied.

The problem I see with the ruling is that it arbitrarily restricts the market based on the bankroll of its participants. Whether a judge would consider such a ruling in violation of substantive due process and equal protection will likely not be realized. However, I believe if a group or individual were to fight it in the courts, (IMO) they would have principal on their side, a nice advantage if the ruling would be decided on an interpretation as to the scope of equal these clauses.

After all, the United States is the most powerful country in the world as a result of our open market; as a result of dirt poor immigrants with an entrepreneurial spirit starting businesses on shoe-string budgets. This never ending red tape is turning the American dream into the American nightmare.

I am not a constitutional lawyer and have only a single law class under my belt so I have no idea if precedent is against me here and if due process and equal protection would fly in a court of law. What I do know is I am disappointed that too many people are willing to accept the notion that government exists, in part, to protect its citizens from themselves. For me, that is what the argument is all about.

truthfultrader
 
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