Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: kendall harmon who wrote (2687)	8/23/2001 11:52:41 PM
From: Susan G	Read Replies (2) \| Respond to of 26752

Not only will the new margin rule affect the number of daytraders out there, but many will be totally unable to short without a margin account. Up until now all you needed was a 2k account to short. It will be interesting to see if we notice the change. Some Guns Will Be Holstered Under New Margin Rules for Daytraders By Diane Hess Staff Reporter 8/23/01 2:36 PM ET Daytraders may or may not have exacerbated the market's decline over the past few years with a lot of trigger-happy decisions. But partly because of that perception, life is about to get harder for them. On Aug. 27, the New York Stock Exchange, and on Sept. 28, the National Association of Securities Dealers will raise the minimum account balance for "pattern" daytraders who want to use borrowed money to buy stock. The new rules require at least $25,000, considerably higher than the current $2,000. "After researching the trading business extensively, investing large sums of personal capital in computer systems and a comprehensive course of classroom training, I am just starting my career as a trader," wrote Christopher Noone in a comment appended to the Securities and Exchange Commission's announcement of the new minimum. "The passage of this rule would effectively put me out of business." The regulation would apply to accounts that execute at least four daytrades a week, although you're exempt if daytrades are 6% or less of all your transactions. The term daytrade refers to positions that are opened and closed in a single session. The rule also says that funds used to meet margin requirements must stay in the accounts for at least two days. The aim is to offset risk associated with a sometimes-rash subset. Investors who bought heavily on margin saw their net worths plunge alongside the Nasdaq -- some say worsening its decline. The new rules are designed to prevent that from recurring. While it's impossible to quantify exactly what the restrictions will do to Wall Street profits, online brokerages are likely to take the brunt of any downside. Trading sites, whose lifeblood is volume, have seen average transactions pounded in the current downturn, with their share prices following suit. The American Stock Exchange Broker/Dealer Index has plummeted 21% this year; it could sink further if trading volume doesn't revive. Recent announcements from the industry tell the story. Online broker TD Waterhouse (TWE:NYSE - news - commentary - research) reported a third-quarter loss yesterday; its trading volume per day dropped 18% in the latest quarter. Schwab (SCH:NYSE - news - commentary - research) said average daily trading volume fell 10% in July from June, off 43% from a year ago. And daily trading volume at Ameritrade (AMTD:Nasdaq - news - commentary - research) slid 16% in July from June and was down 30% from last year. With that trend in mind, brokerages have put on a brave face about the new rules. "Our clients have the necessary cash balances in their accounts," said Natalie Carlson, a spokeswoman for Ameritrade. "We don't see it affecting us in a huge way." "It's difficult to say if the new rule is going to have an effect," said Jim Griffin, a spokesman for Fidelity Investments. "People might consolidate assets to adhere to the $25,000 minimum, or they might cut down on trading to avoid being categorized as a 'pattern' daytrader." Mike Dunn, a spokesman for Datek Online, said online brokers could even benefit from the new rule if "investors consolidate their money from several accounts into one." Traders might transfer money from different places, such as mutual funds or other daytrading accounts. But, he conceded, "Some people will be unable to carry out short-term trading." Among daytraders themselves, there has been opposition. In comments filed with the SEC, individual investors decried it as unfair to smaller market players. "People should be free to enter the daytrading profession with as little legislative expense as possible," wrote Todd McCown. But the move shouldn't come as a shock to anyone. There have been several recent attempts to rein in the sector. The NASD, for example, now requires member firms that promote daytrading to provide a risk disclosure statement. Edward Nicoll, the chief executive of Datek Online, wrote that the new rule "would place a heavy burden on the securities industry to monitor customer activity." He added that the $25,000 minimum is arbitrary, as there is no minimum for options accounts or for accounts at firms that explicitly cater to daytraders. thestreet.com