# Is this standard for margin accounts?



## mrcheap (Apr 4, 2009)

Hi all,

I had a situation at Scotia ITrade that I found quite annoying (and they acted like I was crazy for being annoyed - the customer service rep was quite rude).

I sold about $20k of BMO stock from a margin account and the cash showed up in my balance for that account immediately. I transferred it to another Scotia ITrade account and bought an ETF there. Three weeks later I get hit with about $15 in interest. I called up to inquire, and it turns out this was from the time between when the BMO stock was sold until settlement. They claimed that although the funds showed up in my balance, they weren't really there, and therefore when I transferred them to the other account it was a hidden margin debt (at no point did it show a debt) that I was charged interest on. They agreed to waive the $15, but said they were putting a note in my account and wouldn't waive similar interest charges in the future (and assured me this is standard practice in margin accounts).

This has been annoying me since. Are they right, that investors are suppose to just keep track of settlement timelines? I'd move to another discount brokerage if they didn't do this nonsense (I've been waiting for a reason to leave Scotia ITrade for a while now). 

If I'm in the wrong please tell me!


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## MoreMiles (Apr 20, 2011)

They are right. The money is there only after settlement day. For stocks, it's 3 days and for options it's 1 day. 

You have to understand, your broker has to send the 'stocks' to your buyer and collect the money. You are not selling it to Scotiaidtrade. They are only your broker so they are just the middleman for your buyer. You can think of trying to sell your house. Do you expect your broker to get your money instantaneously? It's all electronic and automatic now. But there are still procedures in case of mistake etc. Remember the Facebook IPO and flash crash fiasco? The exchanges went back and reverse some trades later that day. So no you cannot have your money right away. 

By the way, this is probably written somewhere in your account application, with your signature accepting it. It's just that you did not read it. I guess.


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## mrcheap (Apr 4, 2009)

I wish they wouldn't immediately credit my account then, or have an "available cash" balance in addition to the main balance.

<sigh> I guess moving won't help me then. Thanks!


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## MoreMiles (Apr 20, 2011)

mrcheap said:


> I wish they wouldn't immediately credit my account then, or have an "available cash" balance in addition to the main balance.
> 
> <sigh> I guess moving won't help me then. Thanks!


This is the official explanation from US government:

http://www.sec.gov/investor/pubs/tplus3.htm


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## james4beach (Nov 15, 2012)

Yes I think they are right.

Here's a "test" for situations where you're unsure you're borrowing on margin. Pretend you have a non-margin account and see if what you're doing would be possible. In your scenario, you would not have been able to transfer cash out of the first account. The point at which you transferred cash out of the first account is the point at which you borrowed $20k from the broker.

So I think you borrowed $20,000 for 3 days and a $15 charge would mean about 9% interest... that seems high to me so you may want to check how they calculated that.

For instance, with my TFSA at TD Waterhouse (which is cash-only). If I sell stock today it takes T+3 before I'm allowed to transfer money out of the account so that aligns with your scenario.

I would be able to immediately buy another stock within the same account. That's because the new purchase also has T+3 settlement so by the time the new purchase settles, the money is available from the first transaction.

I'm not 100% sure of this but -- I think you could have not transferred the money over, gone ahead and bought your NEW stock even with $0 cash balance. Then as soon as your first trade settled, you could have made the cash transfer between accounts. I think this would have accomplished what you needed with no loan. So the $20k you borrowed was a waste because that $20k wasn't needed until 3 days later.


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## GoldStone (Mar 6, 2011)

mrcheap said:


> I wish they wouldn't immediately credit my account then, or have an "available cash" balance in addition to the main balance.


That would be far more annoying, because you would not be able to buy another security in the same account for another 3 days.


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## james4beach (Nov 15, 2012)

I'll agree that they can probably improve their interface. As I recall TD Waterhouse has a screen where you can see settled cash versus available cash


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## Xoron (Jun 22, 2010)

GoldStone said:


> That would be far more annoying, because you would not be able to buy another security in the same account for another 3 days.


This is the reason you got the money in your account immediately. If you wanted to purchase another stock, it would settle in 3 days, so you can buy after a sell using the new cash. Otherwise any sale would require a full 3 day settlement before you could use that cash. 

What they should do is prevent you from transferring it out, or at least warn you somehow.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> I'll agree that they can probably improve their interface. As I recall TD Waterhouse has a screen where you can see settled cash versus available cash


Scotia iTrade has that exact same type of interface.
It shows two cash balances side by side.
Following is screen print from my margin account

@mrcheap, does your account summary page not look like the following.


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## mrcheap (Apr 4, 2009)

HaroldCrump: I do have that and see now the settlement date cash is separate. I guess I didn't notice that this was 0 when the cash hit my account (and it must have been negative after that, but I could swear I looked over the account and didn't see any negative numbers).

I guess it was just my oversight. Thanks everyone for the info!


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## james4beach (Nov 15, 2012)

I still wonder how they came up with $15 though, I would expect interest @ 4.25%

20,000 x 4.25% x (3/365) = $7 interest


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## mrcheap (Apr 4, 2009)

Well, the interest charge says "FROM 08/22 THRU 09/21 @ 4 1/4% BAL AVBAL 16;291". For the equity sale, the transaction date is August 29th, and the settlement date is September 4th, so that could be why it's more (3 business days = 6 actual days in this case). This period included labour day and a weekend.


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## james4beach (Nov 15, 2012)

Oh that makes sense, 6 actual days.


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