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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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To: Tom C who wrote (11269)6/5/2004 2:01:02 PM
From: Dan Duchardt  Read Replies (2) of 12617
 
If you have a margin account you have some leeway

Why?

Reg T does not permit the use of more than a percentage of the Broker's money to cover the cost of a security in any kind of account, margin or cash. The only difference is that in a cash account the amount of broker money is zero. Both types of accounts have the 3-day grace period to make good with the cash to cover the purchase or deliver stock to cover a sale. If the use of unsettled funds by a client is a violation of Reg T, then the flipping of securities that happens every day in margin accounts is a violation of Reg T. The application of this regulation is totally inconsistent.

I've talked to several compliance professionals about these issues, and frankly I get the distinct impression that even they don't really understand the regulations. The typical response to my questions has been "I don't know." My opinion, which of course counts for nothing, is that there has been an inappropriate confusion of the responsibility of a client to deliver cash or securities to make good on a transaction under Reg T and the bookkeeping process of clearing. Based on the information I have been able to find, clearing is now effectively done almost continuously and on a net basis. If I sell something and turn around and spend the proceeds of that sale, the broker is due or has to pay only the difference between what I sold and what I spent. The idea that the broker is subject to risk if I do this in a cash account, but not at risk if I do it in a margin account is preposterous.
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