We have problems here because of the implicit application of Reg T intraday. Reg T should stand on its own wether I make money or lose it. Either it applies, or it doesn't.
I don't write the rules, but I know that the Nasdaq Manual says that when you exceed your Reg. T buying power and make money on the daytrade that since you made money, they assume that you would have been able to send in the money to meet a Reg. T call. Thats just about what the manual says going from memory. I can find that section if you would like to see it.
2) Is the $200,000 Reg T "over-spending" in this example based on the largest open position of the day, or is it cumulative for all DT purchases made in that day?
Its overspending in a way. Anybody that daytrades by exceeding Reg. T is taking a big risk IMO unless they have cash on the sidelines to send in to cover losses. It applies to the largest sum of positions open at any one time during the day. That would be the point where you utilized the most buying power. Reg. T isn't calculated intraday. The night before they sum up your marginable securities, cash and how much credit you have already. Its a simple calculation. Reg. T buying power for the next day is 2*(cash + value of marginable securities value at the close of the market - credit already extended). That buying power stays constant the next day no matter what trades occur and how much money you make, lose or even deposit in the account intraday. There are no intraday revisions of Reg. T buying power.
3) Even if we assume the more favorable answer in 2, that the Reg T call is generated only if the largest open position of the day exceeds the Reg T buying power, then if the proposal to allow DT up to 4x(maintenance margin excess) is adopted daytraders will be allowed to exceed their Reg T buying power by at least a factor of 2 every day. Whenever they use more than half their DT buying power they will exceed their Reg T buying power; then if they take a loss will they have to cover it?
Yes. The 4xrule is pretty lax. You can place some really big bets on margin as long as they are daytrades. Wouldn't mess with it if I didn't have cash that I could raise to cover a potential Reg. T call. If you don't cover a Reg. T call, you get your account closed--and good luck opening up another margin account with another broker.
With 4x, a $50,000 account with no overnight positions will have $100,000 Reg T buying power, and $200,000 DT buying power. If the customer buys $200,000 in stock and sells it for $180,000 has he generated a $20,000 Reg T call? More problems with the notion of Reg T being applied intraday.
For this account, Reg. T buying power = 2*($50,000 + $0 - $0)= $100,000 for the next day.
Rule 2520 buying power = 4*(cash + 1.5*value of marginable securities - credit already extended) = 4*($50,0000 + 1.5*$0 - $0)= $200,000
A $200,000 daytrade which exceeds the Reg. T Buying Power of $100,000, with a $20,000 loss results in a Reg. T call for $20,000--the amount of the loss. The Reg. T Buying Power for the next day is 2*($30,000 + $0 - $0)= $60,000. The guy lost $20,000.
All these problems go away if the Reg T calculation is done on the positions in the account at the end of the day, and if what goes on intraday is left uder the sole juristiction of 2520. If at the end of the day there is a Reg T deficiency, or if that deficiency is bigger than it was the day before, then Reg T says the entire loss has to be covered.
Thats exactly what happens. You got it! |
