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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: OX who wrote (12405)	2/28/2000 9:39:00 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 14162

OX, Unfortunately, the links to NASD Regulation expire when you leave the site, so unless you can tell me how you navigated I can't be sure I'm seeing what you did. The only thing I found that seems particularly relevant I have seen before. I've lifted it to quote here. You can find this by doing a search at the site for "cash account" (9) Free Riding in Cash Accounts Prohibited No member shall permit a customer (other than a broker/dealer or a "designated account") to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker/dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze. The provisions of Section 220.8(c) of Regulation T of the Board of Governors of the Federal Reserve System dictate the prohibitions and exceptions against customers' free riding. Members may apply to the Association in writing for waiver of a 90-day freeze not exempted by Regulation T. Your second link points to Reg T. Section 220.8(a) of Reg T states the rules for permitted transactions in a cash account as follows 220.8 Cash account. (a) Permissible transactions. In a cash account, a creditor, may: (1) Buy for or sell to any customer any security or other asset if: (i) There are sufficient funds in the account; or (ii) The creditor accepts in good faith the customer's agreement that the customer will promptly make full cash payment for the security or asset before selling it and does not contemplate selling it prior to making such payment; (2) Buy from or sell for any customer any security or other asset if: (i) The security is held in the account; or (ii) The creditor accepts in good faith the customer's statement that the security is owned by the customer or the customer's principal, and that it will be promptly deposited in the account followed by some stuff about options and escrow accounts we don't need to think about for now. Forgetting about the items marked (ii) pertaining to sending money after the purchase, or providing certificates for securities sold in order to "settle" the trade, the simplest case is when you only use money already in the account to purchase securities and only sell securities held for you by the broker. None of this sets forth a prohibition against using the proceeds from a sale immediately after that sale, nor a prohibition against using proceeds from a sale of securities purchased that same day. What is specifically prohibited is purchasing securities with money you do not have, and then selling those same securities to raise cash to cover the original purchase. Conclusion: Unless there is some additional rule that prohibits the sale of securities the same day they are purchased (highly doubtful) or using the proceeds of such a sale to purchase additional securities on that day (if it exists, I can't find it) then the only thing you need to allow repeated buying and selling is intraday accounting to ensure you actually had the cash in your account before you spent it. Dan