From: Ken Smith [kenmegsmith@btconnect.com]
Sent: Monday, March 19, 2001 4:34 PM
To: rule-comments@sec.gov
Subject: File No. SR-NASD-00-03

 File No. SR-NASD-00-03 
A submission on “Proposed Rule Change by the National Association of Securities 
Dealers, Inc. to Amend rule 2520 Relating to Margin Requirements for Day-Trading 
Customers.

As a day trader trading the U.S.A stock markets, mainly NASDAQ, from the United 
Kingdom  (U.K). I wish to comment on proposed change to margin requirement rules, 
basically being that minimum equity requirement shall be increased to $25,000 and 
that a day trader may be allowed to trade up to four times that amount in a margin 
account. 

As an individual I have traded the U.K. stock market for around 20 years and have 
traded futures on the U.S.A. markets. I have electronically traded NASDAQ for about 
a year. I am a self-employed day trader. May I also add that I consider NASDAQ to 
be the best stock market in the world for day trading and certain U.S.A brokers 
produce the best software and backup in the world for day trading the U.S.A. stock 
markets.

The purpose of the proposed changes is “that the proposal will more appropriately 
protect the safety and soundness of member firms and ensure the overall financial 
well-being of the securities markets.”

Requirements for me to open a margin account with the U.S.A. broker I use are that I 
must deposit $10,000 have a certain income, assets and experience on trading stock 
markets. I am allowed to trade up to two times this amount, long or short. 

If my account falls below £5,000 I will lose my margin status and be only allowed to 
trade on a cash basis with no short trading and if my account falls below $2000 it 
will be closed. To bring back my margin status I must deposit cash or securities.  

I consider these rules to be very fair and the proposed changes to be inappropriate.

From my experience when a person starts to day trade, testing strategies that he/she has 
developed, losses will be incurred whilst this learning process is developing.

It is my opinion that if the minimum deposit is to be $25,000 and being allowed to 
trade up to four times that amount ($100,000) new traders will incur substantial 
losses sooner.

As an example a U.K. trader opened an account with £5000 to trade derivatives on the 
U.K. stock market. He was allowed to trade four times that amount, opened a position 
of £20,000 and lost £5000 in a day.

I believe that the rules my U.S.A broker has given me are excellent and should be 
adopted for trading the U.S.A stock markets. I would also add that if a person wants 
to trade up to four times their account, then that person should show one years trading 
ability on margin and keep a maintenance requirement of $25,000. These two proposals 
will limit losses incurred from day trading and create a system, which will not burden 
those wishing to start a business day trading.

It takes time to develop such a business, and a maintenance requirement of $25,000 
will cause a hindrance. To give an indication on the time it takes to develop such a 
business. To get a suitable computer, monitors, Internet broad-band connections (ADSL, 
high speed cable modem) and software up and running can take up to six months.

Learning to use sophisticated brokers software, ECN’s (Electronic Communication 
Networks) SOES, SELECTNET and other intelligent order routing systems may take a 
further six months. It can take between one to three years day trading positions of 
between 100-400 shares with a position value of between $3000-$10,000 at a time, 
before that person becomes proficient in day trading.

As with most business’s, profits are not made in the initial years of learning. With 
this in mind I firmly believe that a margin maintenance requirement of $25,000 will 
cause a hindrance to new day traders and the ability to trade four times maintenance 
will create larger losses for that person.

My intention of this submission is to give a day traders perspective on the proposed 
changes and limit losses incurred by people who want to learn how to day trade.

I understand that submissions should be made by March 10, 2000, however there have been 
many changes in electronically trading since that date.

If I can be of any further assistance to the “431 Committee” please do not hesitate to 
contact me.

Ken Smith

March 19th 2001