muncie birder
 |
There is a rule that the NYSE has published effective 2001 regarding this that applies to margin accounts. The rule states that the account must not execute more than 3 day trades in 5 business days then the account must have at least $25,000 is marginable securities of a value of at least $3 a share.
For cash accounts the rules are more restrictive. The rules have to do with the 3 day settlement period, and buying and selling securities within that period. Too complicated to explain here. |
jeff410
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Under some circumstances yes, it could work out that way. It takes three days for a trade to settle. If you have a cash account and buy stock then sell and buy another using all the money in your account, you have to wait for the previous sell order to settle before you can sell the current position. If you made all those trades in one day you would have to wait three days to trade again, or you break some SEC rule |
OPM
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Yes it is true if you hold a cash account. A cash account is an account where you require, and/or the broker requires that all events settle in cash. Under T+3, the current settlement rule, all stock trades must have the shares exchanged for cash within three business days. It could, of course, occur in one day, but it must happen in three days. For safety, brokers require cash accounts to hold cash or stocks three days to verify settlement. Nothing really counts until the brokerage has actual receipt of shares in its account for a purchase, or cash in its account for a sale. Also it isn't 72 hours it is 3 business days after the transaction.
For margin accounts, the broker can "loan" you the money on the pending settlement allowing you to have it instantly, knowing it will settle within three days, or conversely loan you the shares to sell also knowing it will settle within three days. If you have a margin account you can buy and sell every second if the market is liquid enough. However, the potential penalty of a margin account is that the broker can loan out your cash to others or your shares. You won't see the cash get loaned out, but you might indirectly see the shares get loaned out.
This happens when either a dividend is paid or it comes time for a shareholder vote. Imagine you held 1000 shares of IBM and it paid a $1 per share dividend (I do not know or care what it actually pays) and it is near time for the annual shareholder meeting. Imagine someone expects IBM to go belly up and so the stock is massively sold short. The broker goes into your account and loans the shares to a short seller who then sells them to someone else. Although, on paper, you own the shares, if you could look at the company's records, you may not be listed at all, since the shares you own have been loaned to someone who sold them.
It comes time for the dividend, but your broker has loaned out 500 of your shares. So what happens is you get a credit for $500 in qualified dividends from IBM, you get a credit of $500 from the party that borrowed your shares, but it counts as interest for tax purposes, and you get a "markup" check from the borrower to cover the difference in taxes between the dividend tax rate and the interest tax rate. It also counts as interest paid. You go to vote your 1000 shares, but you get a proxy statement and transmissital letter only authorizing you to vote on 500 shares. Someone else gets to vote the other 500 shares.
If you close your position out, or transfer your account, the broker is obligated to make good on the full 1000 shares. You are protected up to $500,000 if the broker goes belly up by the Federal Government. |
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