Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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5/16/05
Regulation T, by Kim Zussman

For those trying to confine short-term strategies to tax-deferred cash type accounts, some recent rule changes can be problematic:

"Thank you for contacting ******.

As of 05/13/05, ***** has begun to implement the Federal Reserves stricter requirements for cash accounts.

The Federal Reserve recently clarified Regulation T, which has required that customers trading in cash accounts make full cash payment for each separate purchase. Under the new interpretive guidance, full cash payment has been strictly defined to exclude the proceeds derived from an unsettled transaction.

This will mean that you will have to wait for a sell transaction to fully settle (typically 3 business days) before you can make a purchase using those funds.

****** must comply with the federal regulations. It is up to each firm to comply and apply these rules. * chooses to apply the new regulation with the stricter requirements."

Another broker contacted recently concurred with this new ruling, which curtails high turnover trading in IRA accounts. Any suggestions?

5/17/05
Charles Pennington adds:

I agree and am nettled over this ridiculous new ruling. My investment firm recently imposed restrictions on my trading based on it. I was trading in a perfectly reasonable way within my IRA, with no borrowing, but using the proceeds from sales before the t+3 settlement. It's a perfect example of bureaucrats enjoying the thrill of exercising arbitrary power. Indeed one can trade futures in an IRA, and there a few brokers that permit this. One can even trade single stock futures in an IRA, although the vig is high there, often the equivalent of 5-10 cents per share on stocks that trade with bid/ask spreads of a penny.