FINRA Updates Day Trading Guidance

FINRA clarified its interpretations for margin rules on counting day trades and pattern day trading (FINRA Rule 4210(f)(8)(B)(ii)).

New Interpretation /02 provides an alternative method for counting day trades when the same security is purchased and sold multiple times on a single day. Under the new interpretation, firms may count the number of times a customer changes its trading direction, from buying to selling or from selling to buying. That is, a customer may execute any number of purchases (sales) in a row in one security, and those are effectively treated as one transaction. Then, if the customer executes any number of sales (purchases) in a row, they will be treated as one day-trade.

New Interpretation /03 allows firms to terminate a customer's "pattern day trader" designation based on a good faith determination, which FINRA stated could be either:

• a customer's written certification that the customer understands the definition of pattern day trading and will not engage in the defined activities; or

• the broker-dealer's implementation of technological restrictions to prevent pattern day trading by the customer.

Should a customer engage in pattern day trading after its status as a day trader has been terminated, the customer's status may not be terminated again "absent extraordinary circumstances."