SEC Day Trading Regulations

The following self-explanatory email correspondance is between myself and the SEC regarding the SEC web page at

http://www.sec.gov/investor/pubs/daytips.htm.

The SEC makes the presumption (which I think is not correct) that day trading stocks is inherently riskier than actually “investing” in stocks.

I questioned this in my email(s) challenging the SEC to provide some evidence to support their view. Although they politely answered my email(s) they refused to address the questions I raised. (Some personal info redacted from emails)

________________

Questions

Monday, October 15, 2007 1:00 PM
From: “Larry _______” _________@yahoo.com;
To: help@sec.gov
I have the following questions regarding statements on the SEC web page at
(http://www.sec.gov/investor/pubs/daytips.htm (“Day Trading: Your Dollars at Risk”):

1. “Day traders rapidly buy and sell stocks throughout the day . . . seconds to minutes they own the stock”

Isn’t this a stereotype which is inconsistent with the

definition of day trader under NASD Rule 2520

(approved by SEC) where a “Pattern Day Trader” account

is defined as one “which makes four day trades within

a five day period”? One trade per day is clearly not

the same as “rapidly buying and selling stocks

throughout the day”. (The following questions presume

the Rule 2520 definition.)

3. “Day traders usually buy on borrowed money”

What evidence supports this assertion? Why is someone

who buys one stock in a day – and sells it at the end

of the day – more likely to buy on borrowed money than

someone who holds the stock overnight?

3. “Most individual investors do not have the wealth,

the time, or the temperament to make money and to

sustain the devastating losses that day trading can

bring.”

What statistical studies or other data supports these

assertions? Why do people who sell stock at the end

of the day have less wealth, time or anything else

than those who hold stock overnight? Why should

closing out a stock position at the end of the day

lead to “devastating losses”?

4. “Day traders typically suffer severe financial

losses in their first months of trading”

What data supports this statement?

5. “. . . day traders should only risk money they can

afford to lose. They should never use money they will

need for daily living expenses, retirement, take out a

second mortgage, or use their student loan money for

day trading.”

If this is your recommendation to the public then why

do you FORCE daytraders (as per Rule 2520) to have a

minimum account of $25,000 – meaning that many of them

will be forced to borrow money to meet this minimum?

(Incidentally, isn’t it true that the smaller the

account – the less there is to lose?)

6. “True day traders do not own any stocks overnight

because of the extreme risk that prices will change

radically from one day to the next, leading to large

losses.”

Wait a minute! Doesn’t this statement contradict

everything else you are asserting about day trading?

If it’s riskier to hold a stock overnight – doesn’t

it follow logically that it’s less risky to liquidate

a stock position during the same day? How do you

justify this contradiction?

7. What credible statistical studies or other data

makes any connection between the length of time a

stock position is held and the risk of price

fluctuation?

8. “Day traders must watch the market continuously

during the day at their computer terminals.”

Isn’t this statement dated? Nowadays traders can

receive email alerts or mobile phone alerts letting

them know about price changes. They don’t need to

“watch the market continuously”.

9. “Day trading strategies demand using the leverage

of borrowed money to make profits.”

Whose strategies demand this? Why can’t someone have

the strategy of buying a stock for cash and then

liquidating the stock at the end of the day in order

to avoid the increased risk of holding it overnight –

without facing Rule 2520 account restrictions?

10. If “The mission of the U.S. Securities and

Exchange Commission is to protect investors . . .”

(http://sec.gov/about/whatwedo.shtml) – isn’t Rule

2520 – in its practical effect – contrary to this

mission – by forcing investors who want to MINIMIZE

RISK (by liquidating stock positions at the end of the

day) to put more money at risk (viz., account minimum

of $25,000)?
__________________________________________

RE: Questions

From: “Help” Help@sec.gov

To: “Larry _______” _________@yahoo.com;
Thank you for your email and taking the time to alert us to
your concerns. We welcome your comments because they help us to regulate and
enforce the laws that assure fair and orderly securities markets.

We maintain a database of information about the complaints and inquiries
we receive. This database allows us to track whether a troubling
situation may be developing about a particular issue, company, broker,
stock, or other securities product. The information you have provided
will be reflected in our database.

Again,
thank you for your e-mail.

Steven G. Johnston

Special Counsel

U.S. Securities and Exchange Commission
______________________________________

RE: Questions
Wednesday, October 17, 2007 12:27 PM
From: “Larry _______” _________@yahoo.com

To: “Help” Help@sec.gov

I asked ten specific questions.
But you haven’t answered even one of them!
Please refer this to your supervisor if you don’t know the answers.
Thanks,

Larry _________
___________________________________

SEC Response – File HO1247169
Thursday, October 25, 2007 8:43 AM
From: “SEC Help” help@sec.gov
To: “Larry _______” _________@yahoo.com

Dear Mr. _______:

Thank you for your additional communication and for your interest in the day trading rules.

The day trading rules were proposed by the New York Stock Exchange and the National Association of Securities Dealers (now FINRA) and approved by the SEC in February 2001. Before approving the NYSE and NASD rules, the SEC extensively reviewed comments from the public, including comments similar to yours. For an explanation of the rationale upon which the SEC relied in approving the rules, you may wish to read the SEC order approving the rules. For your convenience, we are sending a separate e-mail to you containing the approval order. Section IV. of the approval order discusses the approval rationale.

We appreciate your input and concerns.

I hope this information proves helpful to you.

Jack Hardy

Branch Chief

Office of Investor Education and Advocacy

U.S. Securities and Exchange Commission
________________________

Re: SEC Response – File HO1247169

Wednesday, October 31, 2007 12:03 PM

From: “Larry _______” _________@yahoo.com;

To: “SEC Help” help@sec.gov;

Dear Mr Hardy,

Thank you for replying to my email(s) and for sending me a copy of the 2001 SEC approval order.

Unfortunately – once again – none of my 10 questions regarding particular statements on the SEC web page is answered.

You are apparently treating my questions as rhetorical questions rather than as investigative questions. Why?

The 2001 SEC approval order does not answer my questions. Indeed it forms the basis for some of the questions. For example, my first question is regarding the contradiction between the definition of “day trader” in the SEC order and the information which is on the SEC website.

Furthermore, the material you sent me raises a new question.

It seems that the majority of commentators (brokers and the public) opposed the proposed rule with only the NASD and NYSE in favor of their own proposals. Where can I get copies of all the public comments which formed the basis of the SEC decision to verify this?

If this is so, why did the SEC approve the proposed rule against the public interest?

In any case, please refer my questions to the author of the SEC web page (at http://www.sec.gov/investor/pubs/daytips.htm – “Day Trading: Your Dollars at Risk”) for a response.

Thanks,

Larry _________

____________________________________

Fw: Re: SEC Response – File HO1247169

Tuesday, November 13, 2007 10:51 AM
From: “Larry _______” _________@yahoo.com;

To: “SEC Help” <help@sec.gov>

To: Mr. Jack Hardy,

This is to confirm our telephone conversation today regarding the correspondance below.

I pointed out that I am seeking the specific information (statistical studies or other data) which form the basis for the assertions made on the SEC web page.

You advised me to file a Freedom of Information request and you guided me to the web page on the SEC site for doing this (http://www.sec.gov/foia.shtml).

Thanks for your assistance.

Larry ___________

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