Stock Trading and Other Things

Why did the SEC put restrictions on day trading and buying with unsettled funds?

I don't get why the rules are necessary. Who gets hurt if I sell with a purchase made with unsettled funds. And why should day trading be restricted.

Public Comments

1. They are limited the unsettled risk pool for all investors.

The nightmare settlement scenario is massive daily losses compounded (day after day) by individuals who do not have the cash to meet a margin call. If even a few settlements cannot occur or are delayed, it messes up the entire system...potentially crippling it.

The point -- I'm guessing -- that you are missing is that settlement is really a gentleman's trust agreement, not an iron clad rule of law (like bank clearing within the US, for example). A couple of bad apples or a player who games the system, has the potential to bring the whole thing down, That is exactly what happened, BTW, with the ARS and CDS systems in 2008-9. Day traders are a particularly big risk for both, thus the limits.

2. The people with money make the rules. In this case, the people with more money have a HUGE advantage.