FINRA Proposes Replacement of Day Trading Margin Rule

FINRA proposed a rule change to amend Rule 4210 ("Margin Requirements") to eliminate current "day trading margin requirements" and replace them with new "intraday margin standards."

The proposal would eliminate the "pattern day trader" designation—defined as executing four or more day trades within five business days—along with the associated $25,000 minimum equity requirement and the complex "day-trading buying power" calculations based on the previous day’s equity.

As a result, the proposed rule change establishes a new paragraph (d)(2) governing "Intraday Margin," shifting the focus from trade counts to actual, real-time risk exposure.

Under the proposal:

• Members must determine whether an account has an "intraday margin deficit" based on the Intraday Margin Level ("IML") — the amount of cash a customer could withdraw while still meeting maintenance margin requirements—whenever an "IML-reducing transaction" occurs;

• Members may calculate margin requirements through either real-time monitoring or a single end-of-day computation, and deposits held in FDIC-insured sweep programs may be treated as credit balances; and

• Customers who fail to satisfy an intraday margin deficit within five business days, or who repeatedly fail to do so promptly, would be subject to a 90-day restriction preventing them from creating new debit balances or short positions.

FINRA stated that these changes are intended to fix a problem with existing day trading rules, which impose risks on smaller investors in a zero-commission environment as the existing rules may incentivize these customers to hold positions overnight solely to avoid triggering the pattern day trader designation.

If approved by the SEC, FINRA will announce the effective date in a Regulatory Notice. The proposal contemplates an anticipated 12-month interim period during which members may continue to apply the current day trading requirements or elect to adopt the new intraday margin standards early.