So are the days of prop. leverage numbered and are all day trading accounts going to require 25K in them? Including those with B/D big time prop. firms.
Securities traders need $25,000 on deposit in a retail broker dealer to be classified as a "pattern day trader" (PDT) account; which affords them leverage of 4/1 versus the default 2/1. Prop traders in BDs also need $25,000 to join these firms.
Traders who lack $25,000 capital are enticed with offerings from sub-LLC prop trading firms (non-BDs); many of whom ask for deposits of $2,000 or $5,000. Notice the wording about this concept in the SEC enforcement action against Tuco below.
SEC excerpt: "The defendants enticed traders with services unavailable at a registered broker-dealer. As alleged in the complaint, they allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading. The SEC's complaint also alleges that for each $1 in the trader's sub-account, Tuco and Frederick allowed the traders at Tuco to use up to $20 of Tuco's equity, which has been invested by other traders, to purchase securities (20:1 buying power). NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power. "
We have been pointing out for years that we felt that prop trading firms were trying to violate the 4/1 and 2/1 leverage rules of Reg T. See below.
Securities traders need $25,000 on deposit in a retail broker dealer to be classified as a "pattern day trader" (PDT) account; which affords them leverage of 4/1 versus the default 2/1. Prop traders in BDs also need $25,000 to join these firms.
Traders who lack $25,000 capital are enticed with offerings from sub-LLC prop trading firms (non-BDs); many of whom ask for deposits of $2,000 or $5,000. Notice the wording about this concept in the SEC enforcement action against Tuco below.
SEC excerpt: "The defendants enticed traders with services unavailable at a registered broker-dealer. As alleged in the complaint, they allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading. The SEC's complaint also alleges that for each $1 in the trader's sub-account, Tuco and Frederick allowed the traders at Tuco to use up to $20 of Tuco's equity, which has been invested by other traders, to purchase securities (20:1 buying power). NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power. "
We have been pointing out for years that we felt that prop trading firms were trying to violate the 4/1 and 2/1 leverage rules of Reg T. See below.
