To all:
There is a new, disturbing rule that is being proposed by the NYSE and NASD to the SEC that increase day traders' account size requirements to $25,000. On the surface, its obvious impact is to increase the account size requirements for day traders from $2,000 to $25,000. I.e., for a "Pattern Day Trader", your account has to maintain at least $25,000 at all times or you lose your margin. I'm less concerned about the monetary amount and much more concerned about the way this is being handled.
Here is a link to the full text of the Federal Register filing: 207.152.160.36
Then, click on the link, "SEC proposed rule changes in FedReg - 1/25/00".
Below is text from the "NASD/NYSE press release - 12/10/99" (link on above page).
In addition to the obvious account size requirement increase, there are several things about this filing that are VERY disturbing:
>> Lack of public disclosure - I am extremely concerned about the lack of public disclosure and discussion. I have seen nothing about this until about a week ago. Given the media hysteria that day traders have been subjected to, you would think that this change would receive wide publication. Also, given the impact that this will have on every trader, you would think that education is critical. I've seen nothing in any paper or publication.
>> Definition of a day trader - This rule specifically defines a day trader as...
(ii) [A "day trader" is any customer whose trading shows a pattern of day trading.] The term "pattern day trader" means any customer who executes four (4) or more day trades within five (5) business days. However, if the number of day trades is 6% or less of the total trades for the five (5) business day period, the customer will no longer be considered a pattern day trader and the special requirements under paragraph (f)(8)(B)(iv) of this rule will not apply.
Once this definition is in place, it can be used for other, more restrictive rules. Also, the part about "...6% or less of the total trades..." seems to provide allowances for some unnamed group. Perhaps large brokerages with in-house traders? (I don't know who.)
>> Lack of adequate time for discussion - This rule is open for public comment and will be closed on February 2, 2000! Given the lack of public exposure and the major impact on investors and traders, I am extremely concerned about the way that this is being handled.
You can send you comments to: "rule-comments@sec.gov"
Regards,
Dan.
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NASD/NYSE press release - 12/10/99
This is found at NASD/NYSE press release
For Release:
Media Contacts:
December 10, 1999
Rich C. Adamonis/NYSE
(212) 656-2140
Nancy A. Condon/NASD Regulation
(202) 728-8379
NYSE and NASD Propose Higher Level of Margin Requirements for Day
Trading
NEW YORK, Dec. 10. The National Association of Securities Dealers, Inc. Board of
Governors and the New York Stock Exchange Board of Directors have approved proposals to
establish special margin requirements for customers who day trade in an effort to address the
risks associated with the practice.
The proposals, to be submitted to the Securities and Exchange Commission for approval,
would amend NYSE Rule 431 and NASD Rule 2520, which govern margin requirements.
Under the proposed rules, customers who engage in a pattern of day trading would be subject
to minimum equity requirements. The amendments would also limit a day trader's buying
power to an amount based on funds that must be in the account prior to any day trading
activities.
The proposals would also:
Provide that a pattern day trader's account must maintain a minimum equity of $25,000,
at all times, as compared with a $2,000 requirement for other margin accounts. If the
account of a pattern day trader falls below the required minimum equity, no further day
trades will be permitted until the requirement is maintained.
Restrict pattern day traders from trading in excess of their day-trading buying power. If
the day-trading buying power is exceeded, the account will be margined based on the
total cost of all day-trade purchases for that day, and the customer's day-trading buying
power will be reduced until the necessary margin is deposited.
Restrict pattern day traders to day trading on a cash-available basis only, if the special
margin call is not met within five business days.
Prohibit pattern day traders from utilizing account guarantees otherwise permitted in
margin accounts.
Restrict withdrawal of money deposited to meet minimum equity and maintenance
margin requirements for two business days in order to provide greater financial stability
to such accounts. |
