By: Daily Record Staff//April 1, 2010
By: Daily Record Staff//April 1, 2010//
The Financial Industry Regulatory Authority this week announced that it has fined Scottrade Inc. $200,000 for violating pattern day trading margin rules and extending credit to customers in violation of federal securities laws and banking regulations.
FINRA determined Scottrade allowed certain margin account customers who executed a high volume of trades to continue to trade after the value of their accounts fell below the minimum equity requirement, according to a release from the authority.
FINRA rules require margin account customers who meet the definition of “pattern day traders” to maintain at least $25,000 in their margin accounts. A day trader is someone who buys and then sells the same stock in the same day in a margin account. A pattern day trader is generally defined as a customer who day trades four or more times in five business days.
FINRA found that from February 2006 through October 2007, Scottrade did not properly restrict pattern day traders’ trading when the value of those customers’ accounts fell below the required $25,000. Instead, Scottrade sent first-time violators a written notice advising them to restore their account value to at least $25,000 before continuing trading, FINRA charged.
FINRA also found that from February 2006 through January 2007, Scottrade improperly extended credit to certain cash account customers by failing to obtain timely cash payments from customers for their purchases and failing to cancel or liquidate those transactions within the time period specified by Federal Reserve Regulation T.
In concluding the settlement, Scottrade neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.