Making Sure You Comply with NYSE Rule 431
If you are a broker you need to make sure that your clients’ day trading transactions are constantly being monitored and managed properly. The strict guidelines and restrictions per NYSE Rule 431 must be heeded with accuracy.
Remember what the basics are for NYSE Rule 431. As the NYSE rules explain, a trader in all of his accounts must maintain a 25 percent margin of the current market value of all securities. Additionally, $2.50 per share or 100 percent of the current market value, whichever is more, of each short (where the asset’s value can decrease) stock in the account, selling at less than $5.00 per share. Also, $5.00 per share or 30 percent of the current market value, whichever is more, of each short stock in the account selling at $5.00 per share or above has to be maintained, and 5 percent of the principal amount or 30 percent of the current market value, whichever is more, of each short bond in the account needs to be as well.
The minimum maintenance margin levels for security futures contracts, both long (where the asset’s value can increase) and short, shall be 20 percent of the current market value.
This is a lot to be concerned with and managing things can get complicated when you are handling clients who are actively day trading. There is also global regulatory compliance to worry about.
Also keep in mind that the proper cost basis reporting must be implemented especially in cases when stock dividends were reinvested rather than accepted as cash payments. When you reinvest your distribution, the cost basis of the investment you made is effectively increased.
Whatever you do, have a premium client risk management system in place to help you make sure your clients comply with Rule 431. Believe it or not, there are software solutions available that can do all the calculating for you. Invest in the right one.
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