Important Notice Notice Number

Transcription

1 Important Notice Notice Number Day Trading Policy and System Changes Securities and Exchange Commission (SEC) approved amendments to the rules that govern day trading in margin accounts. Full descriptions of these amendments can be found in: NYSE Information Memo 01-09( or NASD Notice to Members ( Effective August 27, 2001, as a result of these changes, new policies and system enhancements will be implemented. Identifying a Pattern Day Trader From a regulatory perspective, all margin accounts are considered "occasional day traders." An occasional day trader can become a pattern day trader in one of two ways: If the account executes four or more day trades in five (5) business days, or If the customer fails to meet two (2) day trade calls New Restriction Code for Pattern Day Trader Accounts Pattern day trader accounts will be identified using newly created restriction code 82. The action message that will appear on the FBSI screens for this new restriction code is DAY TRD REQ. This restriction code and action message can be found on the following WSF2 Reports: #025G (Accounts to be Restricted), #025H (Restriction Codes), and #025I (Restriction Aging Report). If the client does not execute a day trade in the next sixty (60) calendar days, restriction code 82 will be removed from the account and it will no longer be considered a pattern day trader account. Calculating Day Trade Buying Power The day trade buying power for "occasional day traders" will be equal to four times (4X) the NYSE surplus. Only pattern day trader accounts will have limitations placed on the day trade buying power

2 while a day trade call exists in the account or while the account is restricted. The day trade buying power for "pattern day traders" will be equal to four times (4X) the start of day NYSE surplus. Once the pattern day trader account generates a day trade call, the day trade buying power will be reduced to two times (2X) the start of day NYSE surplus but will lose the use of "time and tick." When the pattern day trader account becomes restricted, the day trade buying power will be further reduced to one time (1X) the start of day NYSE surplus, again losing the use of "time and tick". (See table below.) Minimum Equity Requirement for Pattern Day Traders Once an account is identified as a pattern day trader, the minimum equity to be maintained in the customer s margin account at all times will be $25,000. If the customer's margin account does not have $25,000 in equity, a day trade minimum equity call will be issued and will be due in five (5) business days. The occasional day trader account is not subject to the higher day trade minimum equity requirements but will still be subject to the existing minimum equity requirement of $5,000 for margin accounts. For those accounts with assets held in the cash account, only a positive net credit balance between the core money market and the trade date cash account balance will be considered when determining the day trade minimum equity call. If a net credit does exist, it will be added to the margin equity for the purpose of computing the day trade minimum equity call. Please keep in mind that this will not increment the Margin Equity field displayed on BSUM. It is only being used to calculate the day trade minimum equity call. Cash account positions will not be considered at this time. Day Trade Buying Power Status of Account Occasional Day Trader Pattern Day Trader Unrestricted Account 4x NYSE Surplus 4x NYSE Surplus Open Day-Trade Call 4x NYSE Surplus 2x NYSE Surplus 1 Open Day-Trade Minimum N/A 0 Equity Call 2 Restricted Account 3 (at or above N/A 1x NYSE Surplus 1 $25,000 minimum equity) Restricted Account 2 3 (below $25,000 minimum equity) N/A 0 1 Accounts labeled as a Pattern Day Trader lose the use of "time and tick" while in a day-trade call, day trade minimum equity call, or while under a day-trade restriction. 2 Day Trade Minimum Equity requirements do not apply to Occasional Day Traders 3 Occasional Day-Trader will not have a day-trade restriction applied, only pattern day-traders will be restricted.

3 BSUM Screen Changes The day trade buying power (Day Tr Buying Power), day trade minimum equity call (Min Equity Call), and day trade call (Day Trading Call) fields will be displayed on BSUM in the lower left-hand corner (see examples below). The day trade minimum equity and day trade buying power will be located in the same area, since it is impossible to have day trade buying power while below the required day trade minimum equity of $25,000. These balances will be calculated based on the previous day's closing prices and activity only. No intra-day calculations will be made at this time. TFC=> BSUM BRANCH/ACCT XXX XXXXXX PAGE 1 ANYCUSTOMER PREMIUM AS OF 06/27/01 SSN xxx-xx-xxxx TRUST/PENSION SORT C TYPE/CUSIP ******************************************************************** RSCH OFF * ACCOUNT SUMMARY NETWORTH 23,324 MARGIN MKT VALUE 34,531 CASH COLL BALANCE 0.00 MARGIN BALANCE 11, COLLECTED BALANCE 0.00 INTRADAY BAL 0.00 RUNNING COLL BAL 0.00 CORE MONEY MARKET 0.00 CASH MKT VALUE 0 CASH BALANCE 0.00 OPTION MKT VALUE 0 INTRADAY BAL 0.00 OPTION IN MONEY AMT 0 AVAILABLE TO PURCHASE: MARGIN EQUITY / % 23,324 68% CASH 0 SECURITY REQTS 17,265 MARGIN 17,308 OPTION REQTS 0 CASH / MARGIN 17,308 HOUSE SURPLUS 6,058 NON-MGN SECURITY 6,058 NYSE SURPLUS 14,691 DAY TRADING CALL 21, SMA 55, MIN EQUITY CALL 1, SMA CHANGE 0.00 ACCOUNT SUBJECT TO SPECIAL REQTS NEXT: I-INTRADAY BBAL BREQ BOPP BCLC RRES FB PF1-NEXT PF2-PREV PF3-EXIT

4 TFC=> BSUM BRANCH/ACCT XXX XXXXXX PAGE 1 ANYCUSTOMER BROKERAG AS OF 06/27/01 SSN xxx-xx-xxxx JOINT TENANT - SURVIVOR RIGHTS SORT C TYPE/CUSIP ******************************************************************** RSCH OFF * ACCOUNT SUMMARY NETWORTH 54,243 MARGIN MKT VALUE 69,450 CASH COLL BALANCE 0.00 MARGIN BALANCE 15, COLLECTED BALANCE 0.00 INTRADAY BAL 0.00 RUNNING COLL BAL 0.00 CORE MONEY MARKET 0.00 CASH MKT VALUE 0 CASH BALANCE 0.00 OPTION MKT VALUE 0 INTRADAY BAL 0.00 OPTION IN MONEY AMT 0 AVAILABLE TO PURCHASE: MARGIN EQUITY / % 54,243 78% CASH 0 SECURITY REQTS 34,725 MARGIN 55,765 OPTION REQTS 0 CASH / MARGIN 55,765 HOUSE SURPLUS 19,518 NON-MGN SECURITY 19,518 NYSE SURPLUS 36,880 DAY TRADING CALL 11, SMA 106, DAY TR BUYING POWER 73, SMA CHANGE 0.00 ACCOUNT SUBJECT TO SPECIAL REQTS NEXT: I-INTRADAY BBAL BREQ BOPP BCLC RRES FB PF1-NEXT PF2-PREV PF3-EXIT The fields that were replaced are "PEND MGN INT PERIOD" and "RATE X.XXX% DAY." These margin interest fields are accessible on the BBAL screen. To access the BBAL screen, type "BBAL" in the "NEXT" field at the bottom of the BSUM screen and press Enter. Issuing Calls / Mailgrams Four (4) new mailgrams have been created: Day Trade Call Occasional Day Trader" Day Trade Call Pattern Day Trader" Day Trade Minimum Equity Call Pattern Day Trader" "Day Trade Restriction" Mailgrams will be sent for those correspondents that utilize mailgrams to notify their customers. Payment Period As previously stated, payment for day trade calls and day trade minimum equity calls will be due within five (5) business days from the date they are created. If the customer does not make payment within the prescribed time period, the account will be restricted. Please note, this payment period is in place today, but a grace period of an additional two (2) business days will now be permitted. If a customer makes payment within the two (2) business day grace period, the restriction will be lifted.

5 Non-Withdrawal Requirement There will be a two (2) business day hold on funds deposited to cover a day trade call or day trade minimum equity call. The margin balances that contribute to Collected Balance will be reduced to reflect this hold on the funds. Also, while an account has a day trade call or day trade minimum equity call, the margin balances that contribute to Collected Balance will be reduced to zero. Please note the Cash Collected Balance (Cash Coll Balance on BSUM) will not be affected. Restricting Accounts When a pattern day trader account does not meet a day trade call or a day trade minimum equity call within the payment period, the account will be restricted. Restriction code 81 will be added to identify the account as being restricted. This restriction will remain on the account for a period of ninety (90) calendar days. The restriction can only be removed by a deposit of funds or securities (with sufficient loan value for day trade calls or with sufficient market value for day trade minimum equity calls) into the margin account to meet the call within the allotted two (2) business day grace period. Please remember that restricted accounts will have no day trade buying power (if below the $25,000 minimum equity requirement) will have no limited day trade buying power of one time (1X) the start of day NYSE surplus (if at or above the $25,000 minimum equity requirement) will not have the use of "time and tick".