Re: [CANSLIM] New NASD trading restrictions?

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] New NASD trading restrictions?
Date: Wed, 19 Mar 2003 06:32:27 -0500
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Top of Thread: Re: [CANSLIM] New NASD trading restrictions? Spencer48@aol.com
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Jerome, I still see nothing below that contradicts what I have been saying.
Every purchase must be paid for no later than settlement date (regardless of
source of funds). A new purchase can be made against proceeds from a sale,
provided that the new purchase will not settle sooner than the sale. A new
purchase can be sold prior to settlement, however then the computer will
mark the account for a 90 day restriction automatically, which then must be
removed manually provided payment is made on the purchase date settlement or
sooner. Broker dealers don't like it when you do this as it creates extra
work for them, but it's still legal.

If payment is not made by settlement of a purchase that has already been
sold, no extension of settlement date is permissible, and the account is
restricted for 90 days. Once that happens, new purchases can only be made if
sufficient "settled" funds are available in the account at the time of
purchase.

There is nothing new in this, been the Fed Rule for decades.

- ----- Original Message -----
From: "Jerome Buckmelter" <jsjbuck@myexcel.com>
To: <canslim@lists.xmission.com>
Sent: Wednesday, March 19, 2003 2:53 AM
Subject: RE: [CANSLIM] New NASD trading restrictions?


Just to set the record straight, I have never violated any trading law
or ever had my accounts restricted, so that is not the issue.  Moreover,
Ameritrade admitted that the letter they sent me is a form letter that
they send to all who inquire of this matter (see cut-and-paste excerpt
below). And again the Client Services staff is telling me that this is a
new interpretation from the FRB as of March 13, 2003.  Note that the
second paragraph states clearly that one cannot purchase a stock from
the proceeds from a sale made the same day, and must wait generally
three days before reinvesting.  I contacted the FRB and the say that one
can sell a stock and purchase another one on the same day as long as the
purchased stock isn't sold the same day (see the second cut-and-paste
excerpt below) from the FRB.  So, it is clear that Ameritrade is wrong,
but how do they get off restricting one's account, and more importantly
what can one do to resolve the issue?  Thanks to all who have responded
to this thread, your input has been appreciated.  Jerome
~~~~~~~~
[Below is cut-and-paste excerpt from Ameritrade:]
[begin text]"We are contacting you to explain how recent regulatory
guidance we received related to cash accounts will impact your trading
activity.

"RESTRICTIONS IN CASH ACCOUNTS
Under applicable interpretations issued by the staff of the Board of
Governors of the Federal Reserve System, cash account clients are
prohibited from making a practice of selling securities without having
paid for their purchase with "cash" available in their account. "Cash"
includes existing cash in the account, the proceeds of settled sales of
fully-paid for securities, and additional cash deposits. Proceeds of a
sale may not be included as "cash" before the settlement date - which is
generally three business days."[end text]
~~~~~~~~~
[Below is cut-and-paste excerpt from FRB:]
[begin text]"Please note that one can sell a stock and purchase another
one that same day with the
proceeds, provided that one does not intend to sell the second security
before the
purchase settles.  The two staff opinions attached illustrate this
concept.


 5-616.15
CASH ACCOUNT-Sale and Subsequent Repurchase of a Security
A customer has a cash account with fully paid-for securities and no
cash. On trade
date, the customer instructs the creditor to sell the securities. Later
on the same
trade date the customer instructs the creditor to repurchase the same
issue of
securities for the same cost.
Each transaction effected in a cash account must be permissible under
section
220.8(a) of Regulation T. The sale is permissible under section
220.8(a)(2)(i) of
Regulation T, which allows a creditor to sell a security for a customer
if "the
security is held in the account." The purchase is permissible under
section
220.8(a)(1)(ii), which allows a creditor to purchase a security for a
customer if
"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."
Board staff was asked whether the customer should be deemed a day trader
and whether
Regulation T requires the customer to pay in full for the purchase with
new funds
rather than applying the proceeds of the sale of the fully paid-for
securities to
avoid the imposition of a 90-day freeze pursuant to section 220.8(c).
The term "day
trader" does not appear in Regulation T, and Board staff believes that
the customer
is not required to pay for the purchase with new funds if the securities
are not
resold prior to the settlement date. According to section 220.8(c)(1),
the 90-day
freeze is triggered "if a nonexempted security in the account is sold or
delivered to
another broker or dealer without having been previously paid for in full
by the
customer." The customer in the example has not engaged in this activity.
STAFF OP. of
Jan. 6, 2000.
Authority: 12 CFR 220.8(a) and (c)...." [end text]



- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com] On Behalf Of Spencer48@aol.com
Sent: Tuesday, March 18, 2003 2:29 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] New NASD trading restrictions?

Tom & Robert:

     I think I was, indeed, shooting from the hip.

     As I understand it now (as you explained it in your 3/17, 11:29 AM
E-mail to Canslim, which, in part, says:  "...Jerome, perhaps you did
not
understand my prior reply, but the attachment you posted from Ameritrade
does
not prohibit you from buying one stock with the proceeds from another
sale
done the same day. It did inform you that your acct was restricted, as I

pointed out, if you had not done any sales, then that is obviously an
error.
One thing that did occur to me is that you are transferring into
Ameritrade
an acct from another firm. If that acct is already restricted due to a
violation of a Fed call or Reg T call that was not met, or a sale
without
paying for the purchase, then that restriction travels with the acct on
the
transfer, since that is a Fed Reserve rule, not Ameritrade, nor
Schwab...."),
Jerome bought without his check clearing and then sold what he had
bought.
Of course, this means he would have used Ameritrade as the risk-taker.

     However, I could be wrong in this case too (it might not have
happened
this way).  In any event, in order to save my vision from
brokerage-speak-fine-print, I think I just want let this subject (at
least
from my side):Drop!

jans



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