NYSE new rule for cash accounts

[bon46]

FYI : For cash accounts-=IRA or KEOGH Accounts- Proceeds from the sale of a stock are not availble for use for 3 business days. E-Trade started this policy on December 5, 2003- I am assuming that this is the date the NYSE changed the rules. I Have $15,000.00 that are not available until next Tuesday Jan. 13, 2004-I had an order for BEL for 300 shares that was cancelled because of the lack of funds- This rules Sucks!
Butch

[jiesen]

new rule

yeah, I was wondering about that rule. I don't quite understand it myself, though I haven't looked very hard into it either. I've been given a warning in my account when I've placed orders with unsettled funds in my IRA, but haven't been prevented yet from executing them (I use scottrade) I wonder if the IRS will get on my case about this... I hope not, that would suck.

[IIC]

This is a copy of a post i put up at one of the other forums I am in:

Unsettled Fund Question

OK…I’m Settling this issue once and for all. It appears to me that the Federal Reserve Reg T allows a broker to limit the use of unsettled funds at their discretion…Either 1) NO RESTRICTION, 2)RESTRICTING THE SALE OF SECURITIES BOT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED OR 3)DISALLOWING THE PURCHASE OF SECURITIES WITH UNSETTLED FUNDS.

Below is an excerpt from Reg T, The Scottrade Policy(see #2 above) and a web addy for Bidwell…Does not allow the use (see #3 above)…Apparently E-Trade falls into #3 above. Brown and Co. #1 above.



Authority, Purpose, and Scope

Reg. § 220.1 (a) Authority and purpose.

Regulation T (this part) is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to the Securities Exchange Act of 1934 (the Act) (15 U.S.C.§78a et seq.). Its principal purpose is to regulate extensions of credit by and to brokers and dealers; it also covers related transactions within the Board's authority under the Act. It imposes, among other obligations, initial margin requirements and payment rules on securities transactions.
(b) Scope.

(1) This part provides a margin account and seven special purpose accounts in which to record all financial relations between a customer and a creditor. Any transaction not specifically permitted in a special account shall be recorded in a margin account.

(2) This part does not preclude any exchange, national securities association, or creditor from imposing additional requirements or taking action for its own protection.
Table of Contents
Definitions
Reg.§220.2

The terms used in this part have the meanings given them in section 3(a) of the Act or as defined in this section.
(a) "Credit balance" means the cash amount due the customer in a margin account after debiting amounts transferred to the special memorandum account.

(b) "Creditor" means any broker or dealer (as defined in sections 3(a)(4) and 3(a)(5) of the Act), any member of a national securities exchange, or any person associated with a broker or dealer (as defined in section 3(a)(1 of the Act), except for business entities controlling or under common control with the creditor.

(c) "Customer" includes:
(1) any person or persons acting jointly:
(i) to or for whom a creditor extends, arranges, or maintains any credit; of

(ii) who would be considered a customer of the creditor according to the ordinary usage of the trade;
(2) any partner in a firm who would be considered a customer of the firm absent with partnership relationship; and

(3) any joint venture in which a creditor participates and which would be considered a customer of the creditor it the creditor were not a participant.
(d) "Debit balance" means the cash amount owed to the creditor in a margin account after debiting amounts transferred to the special memorandum account.

(e) "Delivery against payment," "Payment against delivery," or a "C.O.D. transaction" refers to an arrangement under which a creditor and a customer agree that the creditor will deliver to or accept from, the customer, or the customer's agent, a security against full payment of the purchase price.

(f) "Equity" means the total current market value of security positions held in the margin account, plus any credit balance less the debit balance in the margin account.

(g) "Escrow agreement" means any agreement issued in connection with a call or put option under which a bank, holding the underlying security, foreign currency, certificate of deposit, or required cash, is obligated to deliver to the creditor (in the case of a call option) or accept from the creditor (in the case of a put option) the underlying security, foreign currency, or certificate of deposit against payment of the exercise price upon exercise of the call or put.

(h) "Examining authority" means:
(1) the national securities exchange or other self-regulatory organization of which a creditor is a member; or

(2) if not a member of any such self-regulatory organization, the Regional Office of the Securities and Exchange Commission (SEC) where the creditor has its principal place of business; or

(3) if a member of more than one self-regulatory organization, the organization designated by the SEC as the examining authority for the creditor.
(i) Foreign margin stock means:
(1) a foreign security that is an equity security and that appears on the Board's periodically published List of Foreign Margin Stocks based on information submitted by a self-regulatory organization under procedures approved by the Board; or

(2) A foreign security that is a debt security convertible into a margin security.
(j) Foreign security means a security issued in a jurisdiction other than the United States.

(k) "Good faith margin" means the amount of margin which a creditor, exercising sound credit judgment, would customarily require for a specified security position and which is established without regard to the customer's other assets or securities positions held in connection with unrelated transactions.

(l) "In or at the money" means the current market price of the underlying security is not more than one standard exercise interval below (with respect to a call option) or above (with respect to a put option) the exercise price of the option.

(m) "In the money" means the current market price of the underlying security is not below (with respect to a call option) or above (with respect to as put option) the exercise price of the option.

(n) "Margin call" means a demand by a creditor to a customer for a deposit of additional cash or securities to eliminate or reduce a margin deficiency as required under this part.

(o) "Margin deficiency" means the amount by which the required margin exceeds the equity in the margin account.

(p) "Margin excess" means the amount by which the equity in the margin account exceeds the required margin. When the margin excess is represented by securities, the current value of the securities is subject to the percentages set forth in section 220.18 (the Supplement).

(q) "Margin security" means
(1) any registered security;

(2) any OTC margin stock;

(3) any OTC margin bond;

(4) any OTC security designated as qualified for trading in the National Market System under a designation plan approved by the Securities and Exchange Commission (NMS) security; or

(5) any security issued by either an open-end investment company or unit investment trust which is registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-

(6) Any foreign margin stock.
(r) "Non-exempted security" means any security other than an exempted security (as defined in section 3(a) (12) of the Act).

(s) "Nonmember bank" means a bank that is not a member of the Federal Reserve System.

(t) "OTC margin bond" means:
(1) A debt security not traded on a national securities exchange which meets all of the following requirements:
• At the time of the original issue, a principal amount of not less than $25,000,000 of the issue was outstanding;
• The issue was registered under section 5 of the Securities Act of 1933 (15 U.S.C. Section 77e) and the issuer either files periodic reports pursuant to section 13(a) or 15(d) of the Act or is an insurance company which meets all of the conditions specified in section 12(g) of the Act; and
• At the time of the extension of credit, the creditor has a reasonable basis for believing that the issuer is not in default on interest or principal payments; or
(2) A private mortgage pass-through security (not guaranteed by an agency of the U.S. government) meeting all of the following requirements:
• An aggregate principal amount of not less than $25,000,000 (which may be issued in series) was issued pursuant to a registration statement filed with the SEC under section 5 of the Securities Act of 1933;
• At the time of the credit extension the creditor has a reasonable basis for believing that mortgage interest, principal payment and other distributions are being passed through as required and that the servicing agent is meeting its material obligations under the terms of the offering; or
• a "mortgage-related security" as defined in Section 3(a)(41) of the Act
(4) A debt security issued or guaranteed as a general obligation by the government of a foreign country, its provinces or states, or cities, or a supranational entity, if at the time of the extension of credit one of the following is rated in one of the two highest rating categories by a nationally recognized rating organization:
• the issue
• the issuer or guarantor (implicitly), or
• other outstanding unsecured long-term debt securities issued or guaranteed by the government or entity; or
(5) A foreign security that is a non-convertible debt security that meets all of the following requirements:
• At the time of original issue, a principal amount of at least $100,000,000 was outstanding;
• At the time of the extension of credit, the creditor has a reasonable basis for believing that the issuer is not in default on interest or principal payments, and
• At the time of the extension of credit, the issue is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, except that an issue that has not been rated as of the effective date of this provision shall be considered an "OTC margin bond" if a subsequent unsecured issue of at least $100,000,000 of the same issuer is rated in one of the two highest rating categories by a nationally recognized statistical rating organization.
(u) "OTC margin stock" means any security not traded on a national securities exchange that the Board has determined has the degree of national investor interest, the depth and breadth of market, the availability of information respecting the security and its issuer, and the character and permanence of the issuer to warrant being treated like an equity security traded on a national securities exchange. An OTC stock is not considered to be an "OTC margin stock" unless it appears on the Board's periodically published list of OTC margin stocks.

(v) "Overlying option" means:
• a put option purchased or a call option written against a long position in an underlying security in the specialist record in section 220.12(b); or
• a call option purchased or a put option written against a shot position in an underlying security in the specialist record in section 220.12(b).
(w) "Purpose credit" means credit for the purpose of:
• buying, carrying, or trading in securities; or
• buying or carrying any part of an investment contract security which shall be deemed credit for the purpose of buying or carrying the entire security.
(x) "Registered security" means any security that:
• is registered on a national securities exchange; or
• has unlisted trading privileges on a national securities exchange.
(y) "Short call or short put" means a call option or a put option that is issued, endorsed, or guaranteed in or for an account.
• A short call obligates the customer to sell the underlying security, foreign currency, or certificate of deposit at the exercise price upon receipt of an exercise notice at any time prior to the expiration date of the option.
• A short put obligates the customer to purchase the underlying security, foreign currency, or certificate of deposit at the exercise price upon receipt of an exercise notice at any time prior to the expiration date of the option.
• A short call or a short put on stock index options obligates the customer to pay the holder of an "in the money" long put or call who has exercised the option the cash difference between the exercise price and the current assigned value of the index as established by the option contract.
(z) "Specialist joint account" means an account which, by written agreement, provides for the commingling of the security positions of the participants and a sharing of profits and losses from the account on some predetermined ratio. (aa) "Underlying security" means the security that will be delivered upon exercise of an option.



Table of Contents
General Provisions
Regulation §220.3.
(a) Records. The creditor shall maintain a record for each account showing the full details of all transactions.

(b) Separation of accounts. Except as provided for in the margin account and the special memorandum account, the requirements of an account may not be met by considering items in any other account. If withdrawals of cash or securities are permitted under the regulation, written entries shall be made when cash or securities are used for purposes of meeting requirements in another account.

(c) Maintenance of credit. Except as prohibited by this part, any credit initially extended in compliance with this part may be maintained regardless of:
1. reductions in the customer's equity resulting from changes in market prices;
2. any security in an account ceasing to be margin or exempted; or
3. any change in the margin requirements prescribed under this part.
(d) Guarantee of accounts. No guarantee of a customer's account shall be given any effect for purposes of this part.

(e) Receipt of funds or securities.
1. A creditor, acting in good faith, may accept as immediate payment:
(i) cash or any check, draft, or order payable on presentation; or (ii) any security with sight draft attached.
2. A creditor may treat a security, check or draft as received upon written notification from another creditor that the specified security, check, or draft has been sent.
3. Upon notification that a check, draft, or order has been dishonored or when securities have not been received within a reasonable time, the creditor shall take the action required by this part when payment or securities are not received on time.
4. A creditor may accept, in lieu of securities, a properly executed exercise notice for a stock option issued by the customer's employer and instructions to the issuer to deliver the resulting stock to the creditor. Prior to acceptance, the creditor must verify that the issuer will deliver the securities promptly and the customer must designate the account into which the securities are to be deposited.
(f) Exchange of securities.
1. To enable a customer to participate in an offer to exchange securities which is made to all holders of an issue of securities, a creditor may submit for exchange any securities held in a margin account, without regard to the other provisions of this part, provided the consideration received is deposited into the account.
2. If a non-margin, non-exempted security is acquired in exchange for a margin security, its retention, withdrawal, or sale within 60 days following its acquisition shall be treated as if the security is a margin security.
(g) Valuing securities: The current market value of a security shall be determined as follows:
1. Throughout the day of the purchase or sale of a security, the creditor shall use the security's total cost of purchase or the net proceeds of its sale including any commissions charged.
2. At any other time, the creditor shall use the closing sale price of the security on the preceding business day, as shown by any regularly published reporting or quotation service. If there is no closing price, the creditor may use any reasonable estimate of the market value of the security as of the close of business on the preceding business day.
(h) Innocent mistakes. If any failure to comply with this part results from a mistake made in good faith in executing a transaction or calculating the amount of margin, the creditor shall not be deemed in violation of this part if, promptly after the discovery of the mistake, the creditor takes appropriate corrective action.

(i) Variable annuity contracts issued by insurance companies. Any insurance company that issues or sells variable annuity contracts or engages in a general securities business as a broker or dealer shall be subject to this part only for transactions in connection with those activities. Extensions of credit associated with conventional lending practices of insurance companies are subject to Part 207 of this Chapter.



Table of Contents
Margin Account
Reg. § 220.4
(a) Margin transactions.
(1) All transactions not specifically authorized for inclusion in another account shall be recorded in the margin account.

(2) A creditor may establish separate margin accounts for the same person to:
1. clear transactions though other creditors if the transactions are effected by separate creditors; or
2. provide one or more accounts over which the creditor or a third party investment adviser has investment discretion's.
(b) Required margin. The required margin for each position in securities is set forth in section 220.18 (the Supplement) and is subject to the exceptions and special provisions contained in section 220.5 (Margin Account Exceptions and Special provisions).

(c) When additional margin is required.
(1) Computing deficiency. All transactions on the same day shall be combined to determine whether additional margin is required by the creditor. For the purpose of computing equity in an account, security positions are established or eliminated and a credit or debit created on the trade date of a security transaction. Additional margin is required on any day when the day's transactions create or increase a margin deficiency in the account and shall be for the amount of the margin deficiency. To the extent that debits in a margin account are denominated in foreign currency secured by specifically identified foreign margin securities as provided in section 220.5(g), each foreign currency debit position shall be considered separately for purposes of computing equity in the margin account either in United States dollars or in any other specific foreign currency.

(2) Satisfaction of deficiency. The additional required margin may be satisfied by a transfer from the special memorandum account or by a deposit of cash, margin securities, exempted securities, or any combination thereof.

(3) Time limits.
• A margin call shall be satisfied within 5 business days after the margin deficiency was created or increased.
• The 5 day period may be extended for on or more limited periods upon application by the creditor to a self-regulatory organization or national securities association unless the organization or association believes that the creditor is not acting in good faith or that the creditor has not sufficiently determined that exceptional circumstances warrant such action. Applications shall be filed and acted upon prior to the end of the 5 day period or the expiration of any subsequent extension. However, application filed by firms having no direct electronic access to the organization of association may be accepted as timely filed if postmarked by midnight of the last day of the 5 day period or any subsequent extension.
(4) Satisfaction restriction. Any transaction, position, or deposit that is used to satisfy one requirement under this part shall be unavailable to satisfy any other requirement.
(d) Liquidation in lieu of deposit. If any margin call is not met in full within the required time, the creditor shall liquidate securities sufficient to meet the margin call or to eliminate any margin deficiency existing on the day such liquidation is required, whichever is less. if the margin deficiency created or increased is $500 or less, no action need be taken by the creditor.

(e) Withdrawals of cash or securities. (1) Cash or securities may be withdrawn from an account, except if:
1. additional cash or securities are required to be deposited into the account for a transaction on the same or a previous day; or
2. the withdrawal, together with other transactions, deposits, and withdrawals on the same day, would create or increase a margin deficiency.
3. Margin excess may be withdrawn or may be transferred to the special memorandum account (section 220.6) by making a single entry to that account which will represent a debit to the margin account and a credit to the special memorandum account.
4. If a creditor does not receive a distribution of cash or securities which is payable with respect to any security in a margin account on the day it is payable and withdrawal would not be permitted under this paragraph, a withdrawal transaction shall be deemed to have occurred on the day the distribution is payable.
(f) Interest, service charges, etc.
(1) Without regard to the other provisions of this section, the creditor, in its usual practice, may debit the following items to a margin account if they are considered in calculating the balance of such account;
1. interest charged on credit maintained in the margin account;
2. premiums on securities borrowed in connection with short sales or to effect delivery;
3. dividends, interest, or other distributions due on borrowed securities;
4. communication or shipping charges with respect to transactions in the margin account; and
5. any other service charges which the creditor may impose.
(2) A creditor may permit interest, dividends, or other distributions credited to a margin account to be withdrawn from the account if:
1. the withdrawal does not create or increase a margin deficiency in the account; or
2. the current market value of any securities withdrawn does not exceed 10 percent of the current market value of the security with respect to which they were distributed.

Table of Contents
Margin Account Exceptions and Special Provisions
Reg. § 220.5
(a) Unissued securities.
1. The required margin on a net long or net short commitment in an unissued security is the margin that would be required if the security were an issued margin security, plus any unrealized loss on the commitment or less any unrealized gain.
2. Margin is not required on a net short commitment in unissued securities when the account contains the related issued securities, nor for any net short of long position in unissued exempted securities.
(b) Short sales.
1. The required margin for the short sale of a security shall be the amount set forth in § 220.18 (the Supplement).
2. A short sale "against the box" shall be treated as a long sale for the purpose of computing the equity and the required margin.
(c) Options.
1. Margin or cover for options on exempted debt securities, certificates of deposit, stock indices, or securities exchange traded options on foreign currencies. The required margin for each transaction involving any short put or short call on an exempted debt security, certificate of deposit, stock index, or foreign currency (if the option is traded on a securities exchange), shall be the amount or positions in lieu of margin set forth in § 220.18 (the Supplement).
2. Margin for options on equity securities. The required margin for each transaction involving any short put or short call on an equity security shall be the amount set forth in section 220.18 (the Supplement).
3. Cover or positions in lieu of margin. No margin is required for an option written on an equity security position when the account holds any of the following:
o the underlying security in the case of a short call, or a short position in the underlying security in the case of a short put;
o securities immediately convertible into or exchangeable for the underlying security without the payment of money in the case of a short call, if the right to convert or exchange does not expire on or before the expiration date of the short call;
o an escrow agreement for the underlying security or foreign exchange (in the case of a short call) or cash (in the case of a short put);
o a long call on the same numbers of shares of the same underlying security if the long call does not expire before the expiration date of the short call, and if the amount (if any), by which the exercise price of the short put exceeds the exercise price of the long put is deposited in the account;
o a warrant to purchase the underlying security, in the case of a short call, if the warrant does not expire on or before the expiration date of the short call, and if the amount (if any), by which the exercise price of the warrant exceeds the exercise price of the short call is deposited in the account. A warrant used in lieu of the required margin under this provision shall contribute no equity to the account.
4. Adjustments.
(i) When a short position held in the account serves in lieu of the required margin for a short put, the amount prescribed by paragraph (c)(2) of this section as the amount to be added to the required margin in respect of short sales, shall be increased by any unrealized loss on the position.

(ii) When a security held in the account serves in lieu of the required margin for a short call, the security shall be valued at no greater than the exercise price of the short call.
5. Straddles. When both a short put and a short call are in a margin account on the same number of shares of the same underlying security, the required margin shall be the margin on either the short put or the short call, whichever is greater, plus any unrealized loss on the other option.
6. Exclusive designation. The customer may designate at the time the option order is entered which security position held in the account is to serve in lieu of the required margin, if such service is offered by the creditor; or the customer may have a standing agreement with the creditor as to the method to be used for determining on any given day which security position will be used in lieu of the margin to support an option transaction. Any security held in the account which serves in lieu of the required margin for a short put or a short call shall be unavailable to support any other option transaction in the account.
(d) Account of partners. If a partner of the creditor has a margin account with the creditor, the creditor shall disregard the partner's financial relations with the firm (as shown in the partner's capital and ordinary drawing accounts) in calculating the margin or equity of the partner's margin account.

(e) Contribution to a joint venture. If margin account is the account of a joint venture in which the creditor participates, any interest of the creditor in the joint account in excess of the interest which the creditor would have on the basis of its right to share profits shall be treated as an extension of credit to the joint account and shall be margined as such.

(f) Transfer of accounts.
(1) A margin account that is transferred from one creditor to another may be treated as if it had been maintained by the transferee from the date of its origin, if the transferee accepts, in good faith, a signed statement of the transferor (or, if that is not practicable, of the customer), that any margin call issued under this part has been satisfied.

(2) A margin account that is transferred from one customer to another as part of a transaction, not undertaken to avoid the requirements of this part, may be treated as if it had been maintained for the transferee from the date of its origin, if the creditor accepts in good faith and keeps with the transferee account a signed statement of the transferor describing the circumstances for the transfer.
(g) Credit denominated in foreign currency, A creditor may extend credit denominated in a foreign currency secured by foreign margin securities denominated or traded in the same foreign currency and specifically identified on the creditor's books and records as securing the foreign currency debit.

Table of Contents
Special Memorandum Account
Reg. § 220.6
(a) A special memorandum account (SMA) may be maintained in conjunction with a margin account. A single entry amount may be used to represent both a credit to the SMA and a debit to the margin account. A transfer between the two accounts may be effected by an increase or reduction in the entry. When computing the equity in a margin account, the single entry shall be considered as a debit in the margin account. A payment to the customer or on the customer's behalf or a transfer to any of the customer's other accounts from the SMA reduces the single entry amount.

(b) The SMA may contain the following entries:
1. dividend and interest payments;
2. cash not required by this part, including cash deposited to meet a maintenance margin call or to meet any requirement of a self-regulatory organization that is not imposed by this part;
3. proceeds of a sale of securities or cash no longer required on any expired or liquidated security position that may be withdrawn under section 220.4(e) of this part, and;
4. margin excess transferred from the margin account under § 220.4(e)(2) of this part.
Table of Contents
Arbitrage Account
Reg. § 220.7

In an arbitrage account a creditor may effect and finance for any customer bona fide arbitrage transactions. For the purpose of this section, the term "bona fide arbitrage" means:
(1) a purchase or sale of a security in one market together with an offsetting sale or purchase of the same security in a different market at as nearly the same time as practicable for the purpose of taking advantage of a difference in prices in the two markets; or

(2) a purchase of a security which is, without restriction other than the payment of money, exchangeable or convertible within 90 calendar days of the purchase into a second security together with an offsetting sale of the second security at or about the same time, for the purpose of taking advantage of a concurrent disparity in the prices of the two securities.

Table of Contents
Cash Account
Reg. § 220.8
(a) Permissible transactions. In a cash account, a creditor may:
(1) buy for or sell to any customer any security 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 before selling it and does not contemplate selling it prior to making such payment;
(2) buy from or sell for any customer any security if:
(i) the security is held in the account; or

(ii) the creditor accept 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;
(3) issue, endorse, or guarantee an option for any customer if:
(i) in the case of a call option, the underlying security (or a security immediately convertible into the underlying security, without the payment of money) is held in or purchased for the account on the same day, and the option premium is held in the account until cash payment for the underlying or convertible security is received: or

(ii) in the case of a put option, the creditor obtains cash in an amount equal to the exercise price or holds in the account any of the following instruments with a current market value at least equal to the exercise price and with one year or less to maturity: securities issued or guaranteed by the United States or its agencies, negotiable band certificates of deposit, or bankers acceptances issued by banking institutions in the United States and payable in the United States.
(4) use an escrow agreement in lieu of the cash or underlying security position if:
(i) in the case of a call or put, the creditor is advised by the customer that the required securities or cash are held by a bank and the creditor independently verifies that an appropriate escrow agreement will be delivered by the bank promptly.
(b) Time periods for payment; cancellation or liquidation--
(1) Full cash payment. A creditor shall obtain full cash payment from customer purchases--
(i) within five business days of the date;
(A) any nonexempted security was purchased;

(B) any unissued security was made available by the issuer for delivery to purchasers;

(C) any "when distributed" security was distributed under a published plan;

(D) a security owned by the customer has matured or has been redeemed and a new refunding security of the same issuer has been purchased by the customer, provided:

(a) the customer purchased the new security no more than 35 calendar days prior to the date of maturity or redemption of the old security;

(b) the customer is entitled to the proceeds of the redemption; and

(c) the delayed payment does not exceed 103 percent of the proceeds of the old security.
(ii) in the case of purchase of a foreign security, within five business days of the trade date or the date on which settlement is required to occur by the rules of the foreign securities market, provided this period does not exceed the maximum time permitted by this part for delivery against payment transactions.
(1) Delivery against payment. If a creditor purchases for or sells to a customer a security in a delivery against payment transaction, the creditor shall have up to 35 calendar days to obtain payment if delivery of the security is delayed due to the mechanics of the transaction and is not related to the customer's willingness or ability to pay.

(2) Shipment of securities, extension. If any shipment of securities is incidental to consummation of a transaction, a creditor may extend the five business day period by the number of days required for shipment, but may not by more than five business days.

(3) Cancellation; liquidation; minimum amount. A creditor shall promptly cancel or otherwise liquidate a transaction or any part of a transaction for which the customer has not made full cash payment within the required time. A creditor may, at its option, disregard any sum due from the customer not exceeding $500.
(c) 90 day freeze.
1. 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 privilege of delaying payment beyond the trade date shall be withdrawn for 90 calendar days following the date of sale of the security. Cancellation of the transaction other than to correct an error shall constitute a sale.
2. The 90 day freeze shall not apply if; (i) within five business days of the trade date, full payment is received or any check or draft in payment has cleared and the proceeds from the sale are not withdrawn prior to such payment or check clearance; or (ii) the purchased security was delivered to another broker or dealer for deposit in a cash account which holds sufficient funds to pay for the security. The creditor may rely on a written statement accepted in good faith from the other broker or dealer that sufficient funds are held in the other cash account.
(d) Extension of time periods, transfers.
(1) Unless a self-regulatory organization or association believes that the creditor is not acting in good faith or that the creditor has not sufficiently determined that exceptional circumstances warrant such action, it may, upon application by the creditor:
(i) extend any period specified in paragraph (b) of this section;

(ii) authorize transfer to another account of any transaction involving the purchase of a margin or exempted security; or

(iii) grant a waiver from the 90 day freeze.
(2) Applications shall be filed and acted upon prior to the end of the five day period or the expiration of any subsequent extension. However, an application filed from firms having no direct electronic access to the exchange or association may be accepted as timely filed if it is postmarked no later than midnight of the last day of the five day period or any subsequent extension.



Scottrade
Cash Account Changes
Interpretations of Regulation T, which govern how trades are paid for, state that funds from liquidations in cash accounts will not be available to pay for purchases until the settlement date of the sell.
< day). span credit for in balance>Any credit balance in a cash account may only be used for purchases once per day (these purchases may be broken into blocks, but the total dollar amount can not exceed the total cash available for that day). Proceeds of any subsequent sales will not be released for purchases until settlement date. Proceeds from existing positions can be used to purchase additional securities as long as the new purchase is not sold prior to the settlement date of the previous sale. A sell transaction on the purchase made prior to the settlement date will be considered free riding.

For example, if you make a sell on Monday the 1st, you could use this money to make a purchase prior to the settlement date, however, if you sell and you use the money to make a purchase before Thursday 4th, you cannot sell those stocks until the original sell from the 1st settles. If you do, you will then need to bring in money to pay for the purchase. If you purchase on Thursday the 4th, you may place a sell at anytime you wish, since these are settled funds.
Mutual Funds and Fixed Income Securities can only be purchased with existing or settled funds. Sale Proceeds from Mutual Funds or Fixed Income Securities are available for purchases on Settlement date only.


Examples:
1. Monday 5/1/XX: sell 1000 (ABC) stock for $10,000.00 – Sell has a settlement date of 5/4/XX. You make a purchase of 1000 (XYZ) for $10,000.00 on 5/4/XX, using the settled proceeds from the sale of 1000 (ABC) shares from 5/1/XX. Since the 5/1/XX funds have settled, you are free to use those funds to make purchases of stocks on 5/4/XX, and sell those stocks at anytime without having to bring in any additional cash to pay for the purchases.
2. You sell 1000 (ABC) stock on Monday 5/1/XX for $10,000.00 – sell has a settlement date of 5/4/XX. You then buy 1000 (XYZ) for $10,000.00 on Tuesday 5/2/XX. Since you have used the proceeds from a sale that has not settled yet, to make a purchase, you cannot sell the 1000 (XYZ) stock until 5/4/XX. If you sell the securities that were purchased with unsettled proceeds, on 5/2/XX, before the proceeds settled, then you must bring in additional funds to cover the $10,000.00 purchase. If you do not bring in additional funds, then you will be charged with a free ride.
3. You have 10 (ABC) call options long in your account. You sell the options on Monday 5/1/XX, generating $300.00 in proceeds. You then use the proceeds to buy $300.00 worth of (XYZ) stock, also on 5/1/XX. If you hold those shares of (XYZ) stock until the options sale proceeds settle, on 5/2/XX, then you may sell those shares at any time you want without bringing in any additional money to pay for the purchase. If you sell the (XYZ) stock the same day that you bought the stock, the option sale would not have settled yet, and you would have to bring in an additional $300.00 to pay for the purchase of the (XYZ) stock.
4. You begin the day with a cash position of $10,000 on Monday 05/01/XX. The first thing you do is a buy of 1000 (ABC) stocks for $10,000 Then you sell those securities on the same day generating $10,100.00, which settles on 05/04/XX, and use the money to buy 1100 (XYZ) shares for $10,100.00, again on 05/01/XX. If you hold the 1100 (XYZ) shares until Thursday 05/04/XX, you can then sell those 1100 (XYZ) shares whenever you want without having to bring in any additional funds. If you sell those 1100 (XYZ) shares before Thursday 05/04/XX, then the 05/01/XX sell of 1000 (ABC) would not have settled yet and you could not use those proceeds to pay for the 05/01/XX purchase of 1100 (XYZ) shares. In this case you would need to bring in additional money to pay for that purchase.
Mutual Funds and Fixed Income Securities cannot be purchased unless you have existing funds or the proceeds from an existing sale has settled.

Example:

You begin the day selling $5,000 of a Mutual Fund (ABCDX) on 05/01/XX. This Fund has a settlement date of 05/04/XX. You wish to purchase $5,000 of DEFGX on 05/01/XX using the ABCDX proceeds. This Mutual Fund could not be purchased until 05/04/XX because the ABCDX has not settled.

There are other scenarios that may apply to your trading. Regardless of the security and your trading patterns, please keep in mind to avoid any restrictions on your account, you can only purchase with settled funds.
Non-retirement accounts have two basic choices. Your first option is to provide sufficient cash in the account to support the desired level of trading. Your second option is to sign a margin agreement, which will allow you to trade without the 3 business day hold on sales proceeds.
A consideration with the option of signing a margin agreement would be the requirement by industry regulations, that if you do 4 roundtrips ( A buy and a sell on the same day) in a five-day period, you will be considered a pattern day trader and will be required to maintain $25,000 minimum equity in the account. There could also be interest charges that would apply on any debit balances past settlement date.
Please click here for additional information or review the Brokerage Account Agreement .

BIDWELLPOLICY

https://www.bidwell.com/explore/account_services/forms/CashAcctRegTPolicy_010204.pdf

[jiesen]

thanks

Thanks, IIC, that helps a lot. I guess I'm safe, since the brokerage keeps me from breaking these reg-T rules. I feel like I should be getting some tax accounting class credit for having read that.

[IIC]

Re: thanks

Thanks, IIC, that helps a lot. I guess I'm safe, since the brokerage keeps me from breaking these reg-T rules. I feel like I should be getting some tax accounting class credit for having read that.

Maybe we should start a group to protest the brokerages!!!

[NJ_angler]

Scottrade allows option 2 for unsettled funds

I don't know about other brokers, but Scottrade allows option 2 (RESTRICTING THE SALE OF SECURITIES BOT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED) for both my IRA and regular accounts. They post a warning to that effect every time I've bought with unsettled funds, but I haven't tried to sell prematurely, so I don't know what the consequences might be.

[IIC]

Re: Scottrade allows option 2 for unsettled funds

I don't know about other brokers, but Scottrade allows option 2 (RESTRICTING THE SALE OF SECURITIES BOT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED) for both my IRA and regular accounts. They post a warning to that effect every time I've bought with unsettled funds, but I haven't tried to sell prematurely, so I don't know what the consequences might be.

I use Scottrade too. I've never done it either...but I believe that if you do, they will not allow you to use unsettled funds for purchases for a period of 90 days. I'm thinking about switching our Tax accounts over to Brown and Company...Anyone use them???

With my Hit and Run trading style I have suffered some unnecessary losses because of this rule in our 3 IRA type accounts. The cash accounts are no problem with margin.

[NJ_angler]

Reg T question to Scottrade; will post answer when received.

It appears to me that the Federal Reserve Reg T allows a broker to limit the use of unsettled funds AT THEIR DISCRETION as follows:

1)NO RESTRICTION
2)RESTRICTING THE SALE OF SECURITIES BOUGHT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED
OR
3)DISALLOWING THE PURCHASE OF SECURITIES WITH UNSETTLED FUNDS.

As Scottrade seems to one of the more "small-trader-friendly" brokerages, please advise why you chose option 2 regarding Reg T on all cash, including IRA, accounts. From what I gather, some discount brokerages allow option 1. As an IRA account holder, trading on margin is not available to me and your chosen interpretation severely limits my ability to profit from very short-term price fluctuations in stocks. Any explanation would be sincerely appreciated...

[IIC]

Re: Reg T question to Scottrade; will post answer when recei

It appears to me that the Federal Reserve Reg T allows a broker to limit the use of unsettled funds AT THEIR DISCRETION as follows:

1)NO RESTRICTION
2)RESTRICTING THE SALE OF SECURITIES BOUGHT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED
OR
3)DISALLOWING THE PURCHASE OF SECURITIES WITH UNSETTLED FUNDS.

As Scottrade seems to one of the more "small-trader-friendly" brokerages, please advise why you chose option 2 regarding Reg T on all cash, including IRA, accounts. From what I gather, some discount brokerages allow option 1. As an IRA account holder, trading on margin is not available to me and your chosen interpretation severely limits my ability to profit from very short-term price fluctuations in stocks. Any explanation would be sincerely appreciated...

I'm not sure I understand your question. Maybe I explained it wrong???But at Scottrade you cannot sell a stock purchased with unsettled funds until the funds are settled in an IRA account or non-margin cash account. In a margin cash account you can.

If you want to do short term trading in an IRA at Scottrade it is safer to only use settled funds.

[NJ_angler]

My question was to Scottrade customer service...

Sorry for the confusion...

The question in my earlier post was emailed to the Scottrade customer service folks to try to find out why they decided to use option 2. As they seem more small-trader-friendly than other brokers and seem to have the option of allowing unrestricted use of unsettled funds, I was just wondering aloud why they didn't.

I'll post any reply I get from them to this forum.

Sorry again that I was not more explicit in the body of the post; the truncated original subject line was:

Reg T question to Scottrade; will post answer when received...

[IIC]

My mistake NJ...I didn't look at the Subject line...look forward to hearing the response...best, IIC

[kingofthehill]

etrade startedd enforcing the same rule ..so ill get a margin agreement

i use Fidelity mainly on down to $9.00 per trade ,...thats a nice price ..really fast also

[IIC]

Ameritrade's policy is the same as Scottrade's...A guy in my office pulled up his account and I read it...this is really hampering my IRA type account trades...I think we should form a group to protest...I'll be the webmaster.

[IIC]

Re: Reg T question to Scottrade; will post answer when recei

It appears to me that the Federal Reserve Reg T allows a broker to limit the use of unsettled funds AT THEIR DISCRETION as follows:

1)NO RESTRICTION
2)RESTRICTING THE SALE OF SECURITIES BOUGHT WITH UNSETTLED FUNDS UNTIL THE ORIGINAL SALE IS SETTLED
OR
3)DISALLOWING THE PURCHASE OF SECURITIES WITH UNSETTLED FUNDS.

As Scottrade seems to one of the more "small-trader-friendly" brokerages, please advise why you chose option 2 regarding Reg T on all cash, including IRA, accounts. From what I gather, some discount brokerages allow option 1. As an IRA account holder, trading on margin is not available to me and your chosen interpretation severely limits my ability to profit from very short-term price fluctuations in stocks. Any explanation would be sincerely appreciated...

Did you ever get a response???

[NJ_angler]

Did I ever get a reply???

Not Yet; will resend query on Monday...