Wayne,
I never meant to imply that you were making up the rules, and I apologize if I created that impression. My reference to "smoke and mirrors" etc., was directed at the logical inconsistency that I see in all of this, not at you. You seem to be drawing on some experience with these regulations. I respect that, and I must allow that the interpretation you have presented in fact does represent the current state of practice in the industry. After all, it agrees with the NASD example that started this. Still, if this is the current practice I believe it is fundamentally flawed. It wouldn't be the first time a regulatory body went afoul of the principles it purports to uphold.
On the one hand NASD is saying:
Regulation T has no margin requirements for day-trading per se. Regulation T margin is calculated on the position in the account at the end of the day
Then they effectively add a condition "as long as you don't lose money". The point is that wether you do or do not exceed your Reg T buying power is a function only of what you buy and has nothing to do with whether you gain or lose. As soon as you spend more money than your Reg T buying power you have crossed the line, unless as the quote above says, all that matters is the positions held at the end of the day.
since you made money, they assume that you would have been able to send in the money to meet a Reg. T call.
This may represent the position of NASD, but in my opinion it is antithetical to the fundamental motivation for Reg T limits on spending. The whole idea of Reg T is that one should not be able to borrow their broker's money in excess of reasonable limits established by the regulation, win or lose. And under Reg T, the only way to demonstrate that you could have met the call is to send the money to your broker to settle the trade, regardless of how much money you made on it. Having all the money in the world somewhere else is not sufficient. Using the proceeds of a sale to cover the cost of the purchase is forbidden.
If the point we seem to have mutually come to, that assuming it is true that anytime one spends more than their Reg T buying power and loses money they will have to cover the loss, then the proposal to increase the DT buying power to 4x maintenance excess is a time bomb waiting to blow away a lot of unwary daytraders. Prior to our discussion I have not seen one word about having to cover intraday losses if you use the proposed increased DT buying power. To propose and promote such a change in the rules without full disclosure of this risk is irresponsible on the part of NASD and NYSE.
I'm leaving for the OnlineTrading Expo in the morning, and then a week away. This is my last word on the subject. I would appreciate it if you could find that section if you would like to see it. If you can, I will certainly read it. Perhaps I will find something in it that will enlighten me.
Dan |
