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a professional if it deemed a pattern of SOES trading to exist. Of course, there were no definitions of what constituted a "pattern." In one instance, an account was declared a professional when that person averaged less than one round-trip a day on SOES. |
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The NASD never conducted any studies or had empirical evidence to justify any of these restrictions to SOES. The NASD never articulated any rational need or basis for declaring anyone a professional account or excluding a professional account from the market. These rules were issued under the interpretive powers of the NASD. |
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The NASD did not publish any guidelines specifying what frequency of short-term trades or short-sale trades was "excessive." Even the NASD analysts and supervisors responsible for selecting accounts for possible PTA designation did not have objective criteria for distinguishing between excessive and acceptable trading. Contemporaneous notes and testimony concerning a June 27, 1990, meeting of the Trading Committee indicated that the committee believed that excessive trading should not be defined quantitatively and a "you know it when you see it" standard should be used. |
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I challenged the amendments to the PTA definition as being overly burdensome and vague, and the PTA rule was ultimately repealed after being criticized by the U.S. Court of Appeals for the D.C. Circuit in Timpinaro v. SEC [2 F.3d 453 (D.C. Cir. 1993)]. |
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Bill Timpinaro was a plumber and the quintessential nonprofessional trader. The senseless part of the professional trading account rules was that they literally applied to the account and not the trader. The NASD would deem the account a professional account but nothing prevented the trader from opening another account and continuing to trade. I knew that I had won the litigation when a court of appeals judge asked whether there was a restriction on the number of accounts you could have. The SEC vacillated on an answer to the judge, perhaps because the SEC disagreed with the NASD on the issue of whether the account or the trader became a professional. The same judge then replied |
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