February 25, 2000
TO: The Securities and Exchange Commission
RE: Filing of proposed rule change to amend NYSE Rule 431 ("Margin Requirements")
(Release No. 34-42343; File No. SR-NYSE-99-47)
After graduating college, I entered into the field of pharmaceutical sales with two major firms. When I was seven years into my career, and with much due diligence, I chose a new career in trading stocks full time with my own investment capital. For over three years now, I have consistently grown my business and my income by trading equities. Under your classification criteria, I would be assigned day trader status.
During the calendar year 1999 my net trading income was $120,000. This year I have already netted $117,000 in trading income with only two unprofitable days. I have generated this income for myself almost exclusively through day trading and closing out all positions by the end of each trading session. This is to avoid the risk of any adverse stock moves to which I would be exposed by holding stock overnight.
Upon reviewing the proposed rule changes, specifically the margin requirements, I am gravely concerned about the impact these changes would have on my ability to provide for myself.
On the surface, the proposed increase in margin from 2:1 up to 4:1 would appear attractive to traders. But it masks beneath it another margin rule change that would have devastating consequences on every trader's ability to trade effectively and provide for himself or herself.
The particular rule change to which I refer will often create the following scenario:
If I trade my $200,000 account on margin but exceed my buying power with open positions at any moment during a trading session (even by a small amount), I would be responsible not for the dollar amount by which I exceeded my buying power. Instead, my margin call would be based on the total dollar amount of stock that I had bought and sold cumulatively throughout that whole session as a day trader. This applies even if I have closed out all trades by the end of the day in effort to minimize my overnight risk exposure (over which I have no control).
This proposed "limitation" actually would not limit risk as it is intended. In fact, it could well foster increased risk among stock traders by encouraging them to hold open positions to avoid the inconceivable size of margin call proposed in this rule change.
I refer to this margin call as inconceivable because my own low risk, profitable day trading usually involves buying and selling stock on average 100 to 150 times per trading session using several hundred to over one thousand shares at a time. This often equates to several million dollars worth of stock traded each day, even though I usually have only one to five open positions at any one time.
With this type of severely limiting margin rule, you could effectively "legislate me out of business." This is equivalent to putting a cap on the number of times that I can trade per day. I trust that this is not your intention, as it would affect thousands of other successful traders in the same fashion. Furthermore, this would appear to be detrimental to achieving a fair equities market where traders/investors come to transact business through a variety of trading styles and methods.
I strongly urge you to not adopt this particular margin call rule change. Please contact me with any questions or for further discussion at my home 214-826-1941.
5842 Monticello Ave.
Dallas, TX 75206