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Both E*Trade and TD Ameritrade have a policy that says an investor cannot have two margin accounts with them. He can have two or more cash accounts. Neither firm could tell me why they have this policy.

In the case of E*Trade, one of the accounts came from Option House and it was being charged lower commissions so I wanted to keep it separate. E*Trade had taken margin off the account.

Is there a reason for a firm not to allow one customer to have two separate margin accounts?

Bob

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  • Do you mean a regulatory reason or a simply a plausible reason for the broker to impose such a restriction? As for regulatory reasons - they don’t apply as other brokers offer multiple accounts. – xirt Jun 5 '18 at 22:21
  • A regulatory reason would be a good reason. Is it against the law? – Bob Jun 6 '18 at 21:53
  • as far as I am aware, there is no regulatory reason against an individual holding multiple accounts at the same or different brokerage firms. In fact some offer consolidated accounts for that very purpose. – xirt Jun 6 '18 at 22:54
4

My guess is that this relates to the Pattern Day Trader rule which limits you to 3 day trades in a rolling 5 business days in a margin account (provided that the number of day trades is more than six percent of the total trading activity for that same five-day period).

Rather than having to devote financial resources to program the tracking of multiple accounts under your name (compliance), they simply limit you to one margin account that their software has to track.

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-2

Sounds like a ruse to increase margin rates (as they took margin off your (cheaper) options house account rather than allowing you to close your existing E*trade account).

Also, it is likely that their procedures are probably not designed to manage the risk if you have two accounts. They would have asked you about your income and assets but if you have two accounts you would be giving them double the risk exposure.

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  • 1
    One's income and assets determines approval for opening a margin account not how much margin you are allowed to use. The broker has no 'double the risk exposure' if one has multiple accounts. Standard Reg T overnight margin is 50%. 50% of two $50k accounts is the same margin borrowing as 50% of one $100k account. – Bob Baerker Jun 4 '18 at 22:12
  • Let’s say the broker has a $50,000 per day limit in cash withdrawals to limit (customer) default risk, two accounts would mean double the limit and double the risk and therefore double the exposure (per customer). While I agree it is quite tenuous, it is still a possibility. Reg T and portfolio margin are largely percentage based so rightly would be a function of assets rather than the number of accounts. – xirt Jun 5 '18 at 0:25
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    Daily withdrawal limit is an arbitrary broker restriction. It does not govern default risk. Reg T does. As long as the minimum margin maintenance requirement (MMMR) is met, an account is compliant. Allowing a 50k withdrawal from each of two identical accounts (if it were allowed) would be no different than withdrawing $100k from an account containing the assets from the two single accounts. If the two separate accounts were compliant, the single account would be as well. Default risk is governed by the MMMR. Doubling the withdrawal does not double the risk. That comes from halving the equity. – Bob Baerker Jun 5 '18 at 2:32
  • I am wondering if it has anything to do with Special Memorandum Accounts which are also know as SMA. – Bob Jun 7 '18 at 0:33

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