[Federal Register Volume 91, Number 9 (Wednesday, January 14, 2026)]
[Notices]
[Pages 1580-1589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-00519]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104572; File No. SR-FINRA-2025-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 4210 (Margin Requirements) To Replace the Day Trading Margin
Provisions With Intraday Margin Standards
January 9, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 29, 2025, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 4210 to replace its current
day trading margin provisions with modern intraday margin standards. As
such, the proposed rule change would eliminate paragraph (f)(8)(B)
under Rule 4210 together with associated provisions relating to the day
trading margin requirements under paragraphs (b), (f)(10) and (g)(13),
would establish new paragraphs (a)(17) through (a)(19), new paragraph
(d)(2) and new paragraphs (g)(1)(J) and (g)(1)(K), and would make minor
conforming amendments.
The text of the proposed rule change is available on FINRA's
website at http://www.finra.org and at the principal office of FINRA.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Day trading is a trading strategy where a customer buys and sells
the same security in an account in the same day to profit from intraday
movements in the price or value of the security. To address customer
trading problems arising at the turn of the century, FINRA adopted
special maintenance margin requirements for customers that engage in
day trading in margin accounts, including a specified minimum equity
requirement of $25,000 and buying power limitations for customers that
demonstrate a pattern of day trading (``pattern day traders''). These
current requirements have generally been referred to as the ``day
trading margin requirements.'' \3\ Informed by extensive input from
market participants, including customers, FINRA believes the day
trading margin requirements have become outdated, impose unnecessary
burdens on both customers and members, and no longer align with the
needs of the investing public. As such, the proposed rule change, as
described further below, would replace the current day trading margin
requirements with new provisions for intraday margin. FINRA believes
the proposed new requirements would benefit customers and members alike
by addressing current risks of intraday trading exposures, with fewer
distorting conditions for customers and more practicable margin
standards to be applied by members. The discussion below reviews the
background of the current day trading margin requirements; the concerns
expressed by customers and members regarding these requirements; the
changes in trading conditions that support revisiting these
requirements; and the benefits of the new intraday margin requirements.
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\3\ The day trading margin requirements are set forth under
paragraph (f)(8)(B) of Rule 4210. Associated provisions are found in
references to pattern day trader minimum equity requirements in
paragraph (b) of the rule, as well as paragraph (g)(13), which
addresses the conditions for applicability of the day trading margin
requirements in portfolio margin accounts, and corresponding
references to the day trading requirements under paragraph (f)(10),
which addresses security futures.
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A. Background of the Current Day Trading Margin Requirements; Summary
of the Current Requirements
Under current Rule 4210, the day trading margin requirements
include the following key features:
Defines ``day trading,'' subject to specified exceptions,
as the purchasing and selling or the selling and purchasing of the same
security on the same day in a margin account; \4\
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\4\ See current Rule 4210(f)(8)(B)(i).
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Defines ``pattern day trader'' to mean any customer \5\
who executes four or more day trades within five business days.\6\ A
customer who is deemed a pattern day trader becomes subject to the
special requirements under paragraph (f)(8)(B)(iv) of Rule 4210 that
apply to pattern day traders. Chief among these:
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\5\ Rule 4210(a)(3) defines the term ``customer'' to mean ``any
person for whom securities are purchased or sold or to whom
securities are purchased or sold whether on a regular way, when
issued, delayed or future delivery basis. It will also include any
person for whom securities are held or carried and to or for whom a
member extends, arranges or maintains any credit. The term will not
include the following: (A) a broker or dealer from whom a security
has been purchased or to whom a security has been sold for the
account of the member or its customers, or (B) an `exempted
borrower' as defined by Regulation T of the Board of Governors of
the Federal Reserve System (`Regulation T'), except for the
proprietary account of a broker-dealer carried by a member pursuant
to paragraph (e)(6) of this Rule.''
\6\ See current Rule 4210(f)(8)(B)(ii). Under the current rule,
if the customer's number of day trades is six percent or less of
their total trades for a five-business day period, the customer will
not be considered a pattern day trader.
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[cir] Minimum equity of $25,000 is required for the account of a
customer deemed to be a pattern day trader.\7\ Under the rule, this
minimum equity must be deposited in the account before the customer may
continue day trading and must be maintained in the customer's account
at all times;
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\7\ See current Rule 4210(f)(8)(B)(iv)a.
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[cir] The rule prohibits pattern day traders from trading in excess
of their ``day-trading buying power,'' as defined under the rule.\8\
When pattern day
[[Page 1581]]
traders exceed their day-trading buying power, that creates a special
maintenance margin deficiency and the rule requires the member to take
several specified actions.\9\
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\8\ See current Rule 4210(f)(8)(B)(iv)c. Under current paragraph
(f)(8)(B)(iii) of the rule, ``day-trading buying power'' means the
equity in a customer's account at the close of business of the
previous day, less any maintenance margin requirement as prescribed
in paragraph (c) of Rule 4210, multiplied by four for equity
securities. Paragraph (f)(8)(B)(iii) prescribes several additional
requirements with regard to day-trading buying power.
\9\ Specifically: the account must be margined based on the cost
of all the day trades made during the day; the customer's day-
trading buying power must be limited to the equity in the customer's
account at the close of business of the previous day, less the
maintenance margin required in paragraph (c) of Rule 4210,
multiplied by two for equity securities; and ``time and tick'' (that
is, calculating margin using each trade in the sequence that it is
executed, using the highest open position during the day) may not be
used. See current Rule 4210(f)(8)(B)(iv)c.1. through c.3.
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[cir] Pattern day traders who fail to meet their special
maintenance margin calls as required within five business days from the
date the margin deficiency occurs are permitted to execute transactions
only on a cash available basis for 90 days or until the special
maintenance margin call is met.\10\
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\10\ See current Rule 4210(f)(8)(B)(iv)d.
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[cir] Pattern day traders are restricted from using the guaranteed
account provision pursuant to paragraph (f)(4) of Rule 4210 for meeting
the requirements of paragraph (f)(8)(B).\11\ Further, funds deposited
into a pattern day trader's account to meet the minimum equity or
maintenance margin requirements of paragraph (f)(8)(B) of the rule
cannot be withdrawn for a minimum of two business days following the
close of business on the day of deposit.\12\
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\11\ See current Rule 4210(f)(8)(B)(iv)e. Broadly, paragraph
(f)(4) of Rule 4210 permits an account guaranteed by another account
to be consolidated with that other account, for purposes of margin,
subject to specified conditions under the rule.
\12\ See current Rule 4210(f)(8)(B)(iv)f.
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In the event a customer does not meet a special margin
maintenance call by the fifth business day, then on the sixth business
day only, members are required to deduct from net capital the amount of
the unmet special margin maintenance call pursuant to the SEC's Net
Capital Rule (SEA Rule 15c3-1) and, if applicable, Rule 4110(a).\13\
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\13\ Rule 4110(a) is a component of FINRA's capital compliance
rules.
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These day trading margin requirements were adopted \14\ in their
current form nearly a quarter of a century ago after day trading had
gained popularity in the 1990s.\15\ At that time regulators and
legislators expressed concern that customers needed to be protected
from excessively trading their own accounts, largely because high
commission costs compounded potential trading losses.\16\ It was felt
that customer day trading activities risked significant losses to their
accounts, as well as exposing firms to risk when day trading accounts
lacked adequate equity capital.\17\
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\14\ In 2001, the SEC jointly approved rule amendments by the
New York Stock Exchange (``NYSE'') and by the National Association
of Securities Dealers (``NASD''), FINRA's predecessor, that
established the current day trading margin requirements. See
Securities Exchange Act Release No. 44009 (February 27, 2001), 66 FR
13608 (March 6, 2001) (New York Stock Exchange, Inc., and National
Association of Securities Dealers, Inc.; Order Approving Proposed
Rule Changes Relating to Margin Requirements for Day Trading; Notice
of Filing and Order Granting Accelerated Approval of Amendments No.
1 to Each Proposed Rule Change; File Nos. SR-NYSE-99-47 and SR-NASD-
00-03) (the ``Pattern Day Trading Approval Order''). See also Notice
to Members 01-26 (March 27, 2001) (SEC Approves Proposed Rule Change
Relating to Day-Trading Margin Requirements).
\15\ For further discussion of the history of the requirements,
see Regulatory Notice 24-13 (October 29, 2024) (FINRA Requests
Comment on the Effectiveness and Efficiency of its Requirements
Relating to Day Trading).
\16\ See, e.g., Securities Exchange Act Release No. 43021 (July
10, 2000), 65 FR 44082 (July 17, 2000) (Order Approving Proposed
Rules Change and Amendment No. 1 and Notice of Filing and Order
Granting Accelerated Approval of Amendment No. 2 Relating to the
Opening of Day-Trading Accounts; File No. SR-NASD-99-41) (noting in
part that ``because a day-trading strategy requires frequent trades,
payment of commissions will add to losses or significantly decrease
earnings''), at 65 FR 44084; United States Senate, Permanent
Subcommittee on Investigations of the Committee on Governmental
Affairs, Day Trading: Case Studies and Conclusions, July 27, 2000.
106th Congress, 2d Session, Report 106-364 (stating in part that
``the average day trader must realize gains of more than $200,000
annual just to pay commissions and fees''), at page 3.
\17\ See Pattern Day Trading Approval Order, 66 FR 13608, 13613,
13617.
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Over the years since the day trading margin requirements were
adopted, the financial markets have undergone significant changes,
including broadened access by retail investors; widespread elimination
of trading commissions; expansion of the types of products available,
some of which are designed for short-term trading; and rapid
technological advances. Further, recent years have seen material
changes in the profile of the investing public. For example, research
by the FINRA Foundation identifies large demographic differences in
investors' preferences and attitudes toward investments, with younger
investors more comfortable with risk, including trading on margin.\18\
Younger investors also are more likely to rely on mobile apps for
placing trades and social media for information.\19\ Some market
participants suggested to FINRA that the day trading margin
requirements need to be modernized to better reflect such changes in
the market environment.\20\ Also, over time, FINRA has received input
from members and the investing public that customers are confused and
hindered by the current requirements, and they frequently complain
about the requirements to members. Against this backdrop, in October
2024, FINRA issued Regulatory Notice 24-13 \21\ to commence a
retrospective review of the requirements governing day trading \22\ to
assess their effectiveness and efficiency.
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\18\ FINRA Investor Education Foundation, Investors in the
United States: A Report of the National Financial Capability Study
(December 2025), available at www.FINRAfoundation.org. See also
FINRA Investor Education Foundation, The Changing Landscape of
Investors in the United States: A Report of the National Financial
Capability Study (December 2022); and FINRA Investor Education
Foundation and CFA Institute, Gen Z and Investing: Social Media,
Crypto, FOMO and Family (May 2023), both available at
www.FINRAfoundation.org.
\19\ See supra note 18.
\20\ For example, industry groups such as Securities Industry
and Financial Markets Association and Security Traders Association,
and exchanges including BOX Options Market LLC, Cboe Global Markets,
Members Exchange, Miami International Holdings, Inc. and Nasdaq,
Inc. have suggested that the requirements should be modernized to
account for market developments.
\21\ See supra note 15.
\22\ The retrospective review as announced in Regulatory Notice
24-13 included both the day trading margin requirements and FINRA's
rules that govern approval procedures for day-trading accounts (Rule
2130) and specified risk disclosures that address day trading (Rule
2270). As discussed further below, comments received in response to
Regulatory Notice 24-13 overwhelmingly addressed issues related to
the day trading margin requirements under Rule 4210. FINRA is
deferring consideration of Rule 2130 and Rule 2270 until any further
action on the day trading margin requirements under Rule 4210 is
complete. As such, Rule 2130 and Rule 2270 are not within the scope
of this proposed rule change.
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B. Input From Retrospective Review and Industry Outreach
Commenters on Regulatory Notice 24-13 reflected a broad set of
perspectives, including customers, small and large firms, industry
associations and financial professionals.\23\ Most of the input FINRA
received called upon FINRA to either significantly change or altogether
abolish the day trading margin requirements under Rule 4210. In short:
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\23\ FINRA received approximately 65 comments, available at
FINRA.org.
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Deeming a customer a pattern day trader: Comments from
customers and firms alike expressed frustration with the approach under
the current rule of deeming a customer who executes four or more day
trades within five business days as a pattern day trader. Commenters
felt that keeping count of day trades to detect when a customer engages
in pattern day trading is onerous and restrictive, both for members and
customers. Commenters said the use of day trade counts captures far too
many customers whose trading activity poses little or no risk. More
generally, commenters felt the requirements are not aligned with the
realities and needs of modern trading.
$25,000 minimum equity: Customers in particular asserted
that the $25,000 requirement is unfair,
[[Page 1582]]
prohibitive and exclusionary. Overall, commenters felt that the $25,000
minimum equity requirement unfairly restricts retail customer
participation in the securities markets and is unnecessary in light of
the current capabilities of members to monitor risk in real time.
Commenters said that to avoid being deemed a day trader, customers will
hold positions overnight that they would have preferred to liquidate,
thereby increasing their risk and the risk to members carrying their
accounts. As such, many commenters called for a substantial reduction
or abolition of this requirement.
Day-trading buying power limitation: Commenters felt that
the current day-trading buying power limitations are outdated,
confusing and unnecessarily burdensome. Industry organizations
commented that many members currently monitor and calculate maintenance
margin requirements and account equity in real time, which they
suggested is a better approach than relying on the account's equity at
the close of the previous business day. Commenters said it is more
helpful to customers if they can see their buying power computed and
displayed in their accounts in real time as opposed to a figure based
on the previous day.
Informed by the input received in response to Regulatory Notice 24-
13, FINRA engaged in additional extensive outreach to a cross-section
of members and other interested parties. Members participating in these
outreach efforts urged substituting a new intraday margin rule to
replace the current day trading margin requirements, including
permitting members to use real-time monitoring of customers' activity
and to block trades that would create margin deficits.
C. The Proposed Intraday Margin Requirements
1. Overview of the Proposed Amendments
Informed by the extensive engagement with customers and members,
FINRA is proposing to replace the current day trading margin
requirements, including the provisions relating to ``pattern day
traders,'' the computation and use of ``day trading buying power,'' and
the $25,000 pattern day trader minimum equity requirement, with new
intraday margin requirements.\24\ The new provisions for intraday
margin would ensure customers maintain equity in their margin account
commensurate with the amount of market exposure they have at any given
point in time during the trading day, irrespective of whether they
engage in day trading. FINRA believes that the proposed rule change
will benefit customers and members alike by reducing risks of intraday
trading exposures more broadly and giving customers more freedom to
participate in the markets, while reducing compliance costs for
members. FINRA notes that one of the primary rationales for the current
requirements--that commission costs would seriously undermine returns
when investors over-traded in their accounts--is largely gone:
customers today have the benefit of zero commission trading. In
addition, by removing the current day trading margin requirements, more
retail investors may choose to participate in the markets and pursue
their preferred trading strategies. Further, FINRA believes customers
should also find the intraday margin approach significantly easier to
understand than the current day trading margin requirements. Members,
relieved of the burdens associated with enforcing outdated pattern day
trading requirements, should benefit from lower compliance costs, while
reducing risks of overextended trading. Finally, FINRA anticipates that
the new proposed requirements, by requiring appropriate margin for
intraday risk created by day trades and other intraday activity, such
as transactions in options on their expiration dates (``zero day to
expiration'' or ``0DTE'' options trading), will be effective in
avoiding the build-up of unmargined positions that could hurt both
customers and members during large shifts in market prices.
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\24\ As such, the proposed rule change would delete paragraph
(f)(8)(B) of Rule 4210 in its entirety. In addition, the proposed
rule change would delete, as rendered obsolete, provisions elsewhere
in Rule 4210 that refer to or are premised upon the current day
trading margin requirements, including: in paragraph (b) the
references to the pattern day trader minimum equity requirement;
paragraphs (f)(10)(G)(ii) and (f)(10)(G)(iii) in their entirety,
given those provisions are premised on applying the current day
trading margin requirements in the context of security futures; and
paragraph (g)(13) in its entirety, given that provision is premised
on specified conditions for applicability of the current day trading
margin requirements in portfolio margin accounts. See Exhibit 5.
If the proposed rule change is approved by the SEC, FINRA would
also delete associated interpretations relating to the day trading
margin requirements that FINRA maintains on its website, FINRA.org.
These associated interpretations include: Interpretations/023,/025
and/034 under Rule 4210(b)(4); Interpretation/03 under Rule
4210(f)(5); Interpretations/01,/02 and/03 under Rule
4210(f)(8)(B)(ii); and all interpretations under Rule 4210(f)(8)(B)
and Rule 4210(g)(13).
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FINRA notes that the proposed rule change makes no change to the
regular maintenance margin requirements as they exist today.\25\
Rather, the proposed rule change supplements these existing maintenance
margin requirements.
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\25\ The maintenance margin requirements are set forth under
paragraph (c) of Rule 4210.
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The key features of the proposed intraday margin provisions
include:
Members would be empowered to use real-time monitoring to
block trades that would create or increase customer intraday margin
deficits;
Alternatively, members could, at the end of the day,
compute each customer's intraday margin deficit, which, for customers
that are not day trading or opening option positions on their
expiration date, is comparable to their regular maintenance deficits;
When an account has an intraday margin deficit, the member
would require the intraday deficit to be satisfied as promptly as
possible, by deposits to the account or liquidations of positions to
increase the maintenance margin excess;
If an intraday margin deficit is not satisfied within five
business days, the member would be required to deduct the deficit in
its net capital computations (for up to ten business days). If the
customer makes a practice of failing to satisfy intraday margin
deficits promptly, the member would be required to ``freeze'' the
customer from obtaining additional extensions of credit until the
deficit is satisfied (or 90 days elapse).
2. Detailed Summary of the Proposed Rule Change
The proposed rule change would establish a new paragraph (d)(2)
(``Intraday Margin'') under Rule 4210.\26\ The core, operative
provision would be set forth in paragraph (d)(2)(A), which establishes
the requirement on each member to determine the ``intraday margin
deficit'' \27\ for each margin account of a customer, as further
specified in the rule. Paragraph (d)(2)(B) sets parameters for purposes
of making the required determination. Paragraphs (d)(2)(C) and
(d)(2)(D) govern the satisfaction of an intraday margin deficit and set
forth the provisions for a specified 90 day freeze in the event of
failure to satisfy a deficit. FINRA notes the requirements of new
paragraph (d)(2) are designed so that members could comply with the
rule by implementing real-time monitoring of
[[Page 1583]]
customer positions and blocking transactions that would otherwise
create or increase intraday margin deficits. As a result, these
members' customers should never incur intraday margin deficits. FINRA
notes, however, that real-time monitoring is not a requirement under
the rule and that members would be permitted, alternatively, to
continue to make a single margin calculation at the end of the day,
rather than throughout the day, as they do under the current
requirements. FINRA expects that, for customers that do not day trade
or do not open option positions on their expiration date, the end of
day intraday margin computation should not be more burdensome than the
regular maintenance margin computation because their intraday margin
deficits should not exceed their regular maintenance deficits. FINRA
believes this approach would be effective because, whether the member
implements real-time monitoring, or conducts end-of-day computations,
the rule is designed to result in an effective, disciplined approach to
margin.
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\26\ The provisions under current paragraph (d) would be
redesignated, without material change, as paragraph (d)(1), under a
new header (``House Margin and Limits''), which FINRA believes is
appropriate to the subject matter and function of that paragraph.
\27\ See further discussion below for the proposed definition of
``intraday margin deficit.''
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Following are the elements of proposed paragraphs (d)(2)(A) and
(d)(2)(B):
Paragraph (d)(2)(A)--Core requirement to determine the
intraday margin deficit: Under new paragraph (d)(2)(A), each member
would be required to determine the ``intraday margin deficit,'' if any,
for each margin account of a customer that it maintains, other than a
good faith account or portfolio margin account, and for each day in
which there is any ``IML-reducing transaction.'' \28\ This requirement
involves three key new terms defined under the proposed rule: ``IML''
(or ``intraday margin level''); ``IML-reducing transaction''; and
``intraday margin deficit'':
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\28\ See proposed paragraph (d)(2)(A) in Exhibit 5.
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[cir] ``IML'' (or ``intraday margin level''): Defined under new
paragraph (a)(17),\29\ this term means ``with respect to a customer's
margin account for a time or IML-reducing transaction in such margin
account during a day, either: (A) the amount of cash that the customer
could withdraw while still having the maintenance margin required by
provisions of Rule 4210 other than Rule 4210(d)(2); or (B) the amount
of additional cash (expressed as a negative number) that the customer
would need to deposit into such margin account for it to have the
maintenance margin required by provisions of Rule 4210 other than Rule
4210(d)(2), in each case [that is, (A) or (B)] determined as of such
time or immediately after such IML-reducing transaction in accordance
with Rule 4210(d)(2)(B).''
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\29\ See proposed paragraph (a)(17) in Exhibit 5.
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[cir] ``IML-reducing transaction'': Defined under new paragraph
(a)(18),\30\ this term refers, broadly, to any transaction that reduces
the amount available to a customer to withdraw while still meeting the
maintenance margin requirement (for example, the purchase of a stock
other than to cover a short position or the short sale of an option).
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\30\ See proposed paragraph (a)(18) in Exhibit 5. Paragraph
(a)(18) would define ``IML-reducing transaction'' to mean ``with
respect to a margin account, any purchase or sale effected in such
account (including as the result of the exercise or assignment of an
option) that has the effect of reducing the account's IML, the
expiration of any option long in the account that has the effect of
reducing the account's IML, and any withdrawal of cash or securities
from such account.''
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[cir] ``Intraday margin deficit'': Defined under new paragraph
(a)(19), this term refers, broadly, to the highest deficiency following
an ``IML-reducing transaction'' between the margin to be maintained and
the equity in the account.\31\
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\31\ See proposed paragraph (a)(19) in Exhibit 5. Specifically,
``intraday margin deficit'' would be defined to mean ``with respect
to a margin account for a day in which there is any IML-reducing
transaction in such account, an amount determined in accordance with
Rule 4210(d)(2)(B) by the member maintaining such account that is
not less than the absolute value of the largest negative IML (if
any) with respect to any IML-reducing transaction in such margin
account during such day.''
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Paragraph (d)(2)(B)--Parameters for determining an IML or
intraday margin deficit: Proposed paragraph (d)(2)(B) sets forth
certain parameters for members to take into account in determining an
IML or intraday margin deficit:
[cir] Sweep Programs: \32\ A member would be permitted to treat a
customer's deposits at FDIC-insured banks under a Sweep Program,
operated by the member, as a credit balance in the customer's account
for this purpose.\33\ FINRA notes members would be able to apply such
treatment regardless of whether the customer does any day trading;
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\32\ See the provisions under SEA Rule 15c3-3(j) governing
``Sweep Programs'' as defined under SEA Rule 15c3-3(a)(17).
\33\ See proposed Rule 4210(d)(2)(B)(i) in Exhibit 5 (stating
the member ``may follow a written policy or procedure of treating
the aggregate amount of such customer's deposits at FDIC-insured
banks under a Sweep Program operated by such member as a credit
balance in such account'').
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[cir] Market value: The proposed rule would permit use of values
more recent than the execution price or previous day's closing price to
determine the current market value of a position. FINRA notes, for
example, a member that makes a single end of day calculation of its
customers' intraday margin deficits could utilize the same end of day
prices for that calculation as it uses for determining whether the
customer has a maintenance margin deficiency as the end of the day;
\34\
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\34\ See proposed Rule 4210(d)(2)(B)(ii) in Exhibit 5 (stating
``the member may follow a written policy or procedure of using
values that are more recent than the execution price or the previous
business day's closing price to determine the current market value
of a position, provided that such procedure is reasonably designed
for the purpose of making computations using more current market
values rather than reducing intraday margin requirements'').
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[cir] ``As of'' actions: Members would be permitted to allocate
``as of'' actions either to the approximate time and day during which
they are processed or to the earlier time or day recorded for their
occurrence.\35\
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\35\ See proposed Rule 4210(d)(2)(B)(iii) in Exhibit 5 (stating
``the member may follow a written policy or procedure for the
allocation of `as of' actions either to the approximate time and day
during which they are processed, or to the earlier time or day
recorded for their occurrence, provided that such procedure is
reasonably designed for the purpose of addressing `as of' actions
rather than reducing intraday margin requirements, and the member
redetermines any previously determined intraday margin deficit that
is impacted by the allocation of an `as of'' action to the earlier
time or day'').
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[cir] Treatment of deposits and withdrawals: Members would be
permitted to treat all deposits and withdrawals of cash or securities
into a margin account during the day as occurring simultaneously and
immediately after the beginning of the day, notwithstanding the time of
occurrence. The same would be permitted for any transaction that closes
a position that was open at the beginning of the day. FINRA notes this
allows net deposits, and margin released by closing positions existing
at the end of the day, to reduce or eliminate intraday margin deficits
that otherwise would have occurred as a result of activity before the
deposits or liquidations took place; \36\
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\36\ See proposed Rule 4210(d)(2)(B)(iv) in Exhibit 5 (stating
``the member may treat the following as occurring simultaneously and
immediately after the beginning of the day, notwithstanding the
actual time of their occurrence: a. all deposits and withdrawals of
cash or securities into or from such margin account during such day;
or b. any transaction that closes a position that was open at the
beginning of such day'').
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[cir] Multiple legs of a spread and options exercised and
liquidated on the same day: Members would be permitted to treat as
occurring simultaneously the substantially contemporaneous execution of
multiple legs of a spread, or the creation of a position by the
assignment or exercise of an option and
[[Page 1584]]
the liquidation of such position during the same day; \37\
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\37\ See proposed Rule 4210(d)(2)(B)(v) in Exhibit 5 (stating
``the member may treat as occurring simultaneously: a. the execution
of multiple legs of a spread, or other strategy with a reduced
maintenance margin requirement, as a result of a single order
submission, or otherwise substantially contemporaneously; or b. the
creation of a position by the assignment or exercise of an option
and the liquidation of such position during the same day'').
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[cir] Computing IML: The proposed rule would provide that, for
purposes of paragraph (d)(2)(B), if two or more activities in a margin
account occurred during a day and the member cannot demonstrate that
one activity occurred before another activity, then the IML with
respect to such activities must be computed on the assumption that the
activities occurred in an order that results in the highest intraday
margin deficit for such day.\38\
---------------------------------------------------------------------------
\38\ See proposed Rule 4210(d)(2)(B)(vi) in Exhibit 5.
---------------------------------------------------------------------------
Paragraphs (d)(2)(C) and (d)(2)(D) are designed to help support a
disciplined approach to intraday margin. Following are the elements of
those paragraphs.
Paragraph (d)(2)(C)--Satisfaction of intraday margin
deficit: Proposed new paragraph (d)(2)(C) would include three core
provisions:
[cir] If a margin account (other than a good faith account or
portfolio margin account) has an intraday margin deficit with respect
to a day in which there is an IML-reducing transaction in such account,
then the member must require such intraday margin deficit to be
satisfied as promptly as possible; \39\
---------------------------------------------------------------------------
\39\ See proposed Rule 4210(d)(2)(C)(i) in Exhibit 5.
---------------------------------------------------------------------------
[cir] An intraday margin deficit for a day would be ``satisfied''
for purposes of the rule if, from the end of such day to the end of a
subsequent day, the customer has made net deposits, or otherwise caused
an increase in the account's IML, sufficient to equal such intraday
margin deficit. The rule would provide that net deposits or increases
in IMLs may satisfy multiple outstanding intraday margin deficits for
the same margin account; \40\
---------------------------------------------------------------------------
\40\ See proposed Rule 4210(d)(2)(C)(ii) in Exhibit 5.
---------------------------------------------------------------------------
[cir] An intraday margin deficit would remain outstanding until
satisfied or until immediately after the close of business on the
fifteenth business day after the date of the intraday margin
deficit.\41\
---------------------------------------------------------------------------
\41\ See proposed Rule 4210(d)(2)(C)(iii) in Exhibit 5.
---------------------------------------------------------------------------
Paragraph (d)(2)(D)--90 day freeze: Proposed new paragraph
(d)(2)(D) would provide that, if a customer makes a practice of failing
to satisfy intraday margin deficits as promptly as possible and fails
to satisfy an intraday margin deficit by the close of business on the
fifth business day after it occurs, the member must enforce written
policies and procedures reasonably designed to prevent the customer
from creating or increasing a short position or debit balance (other
than by closing a short position) for 90 calendar days after such fifth
business day or until the intraday margin deficit has been satisfied
(without regard to its expiration pursuant to proposed Rule
4210(d)(2)(C)(iii)). The rule would provide a customer shall not be
considered to be making a practice of failing to satisfy intraday
margin deficits as promptly as possible due to intraday margin deficits
that: (i) do not exceed the lesser of 5% of the equity in the margin
account or $1,000; or (ii) are reasonably determined by the member to
have occurred under extraordinary circumstances such that failures to
satisfy such intraday margin deficits do not reflect a practice of
failing to satisfy intraday margin deficits as promptly as possible.
Finally, the proposed rule change would update the provisions of
paragraph (g) under Rule 4210 with respect to portfolio margin. Because
the proposed rule change would render obsolete references under Rule
4210 that are premised on specified conditions for the applicability of
the current day trading margin requirements, FINRA would delete
paragraph (g)(13).\42\ In lieu of paragraph (g)(13), the proposed rule
change would establish new paragraphs (g)(1)(J) and (g)(1)(K), which
would provide that, among the other monitoring provisions for portfolio
margin, a member, in performing the risk analysis of portfolio margin
accounts required by the rule, would need to include in the written
risk analysis methodology procedures and guidelines for: determining
and monitoring intraday risk created by activity in each portfolio
margin account; \43\ and requiring each portfolio margin account that
maintains less than $5 million in equity to maintain margin for
intraday risk that is substantially similar to the margin the member
requires for positions existing at the end of the day.\44\ FINRA
believes this approach, which preserves the $5 million threshold that
currently applies, is well understood by industry participants and
appropriate given the nature of portfolio margin activity.
---------------------------------------------------------------------------
\42\ See supra note 24.
\43\ See proposed Rule 4210(g)(1)((J) in Exhibit 5.
\44\ See proposed Rule 4210(g)(1)(K) in Exhibit 5.
---------------------------------------------------------------------------
3. Implementation
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice. FINRA recognizes that some members may need time to prepare to
implement the new requirements while other members may be able to
implement the requirements more quickly. As such, FINRA believes
members should be permitted for an interim period to continue to apply
the current day trading margin requirements where they deem
appropriate--for example, by account--while they prepare to implement
the new provisions. By the same token, FINRA believes that members that
prefer to implement the new provisions more quickly should be permitted
to do so at any time prior to the expiration of this interim period.
FINRA anticipates that that the interim period would be for 12 months
after FINRA announces the effective date of the proposed rule change in
a Regulatory Notice. FINRA invites comment on this proposed approach to
implementation of the proposed change, including on whether a 12 month
interim period is appropriate. In particular, FINRA invites comment on
the most appropriate way to achieve a smooth transition that treats
customers and members equitably.\45\
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\45\ FINRA notes that the proposed rule change would not impact
members that are funding portals or that have elected to be treated
as capital acquisition brokers (``CABs''), given that neither
funding portals nor CABs are subject to Rule 4210.
---------------------------------------------------------------------------
To aid members in preparing for implementation of the proposed rule
change, FINRA will make available on its website training materials,
illustrative examples and other guidance as appropriate regarding the
application of intraday margin.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\46\ which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
The proposed rule change is informed by extensive input that FINRA
has received from customers and industry participants. Based upon this
input, FINRA believes that the current day trading margin requirements
are no longer tailored to meet the regulatory objective to protect both
customers and
[[Page 1585]]
members and do not meet the needs of today's customers, members and
markets. FINRA believes that, by eliminating these requirements and
establishing in their place new requirements that address the risks of
intraday trading exposures, the proposed rule change will benefit
customers by providing more freedom to participate in the markets and
will benefit members by reducing compliance costs. Further, the
proposed rule change will provide, to customers and members alike,
additional protection that accounts for new intraday products and the
dynamics of the modern markets. FINRA believes this will help promote
the public interest by facilitating greater participation in the
securities markets, without the loss of investor protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the regulatory need for the proposed rule change, its
potential economic impacts, including anticipated costs, benefits, and
distributional and competitive effects, relative to the current
baseline, and the alternatives considered in assessing how best to meet
its regulatory objective.
A. Regulatory Need
As discussed previously, FINRA believes it is appropriate to
propose a new rule to replace the day trading margin requirements that
were established in a different era. FINRA believes the proposed rule
change aligns with the developments of modern technology, the evolution
of modern markets and the needs of today's retail customers. Some of
the risks the current rule was intended to address no longer exist in
the same form, such as commission charges from frequent trading turning
otherwise profitable trading into losses. At the same time, new risks
have emerged that are not covered by current rule, such the expansion
in 0DTE options trading, which generally does not qualify as day
trading under the current rule.\47\ Modern technology also makes it
feasible for members to implement more sophisticated approaches to
managing risk with fewer unintended consequences for both members and
their customers.
---------------------------------------------------------------------------
\47\ For a broader discussion and additional information on 0DTE
options, see: Zeroing in on an Options Trading Strategy: 0DTE (June
6, 2023), available at: https://www.finra.org/investors/insights/zeroing-in-options-trading-strategy; The Evolution of Same Day
Options Trading (August 3, 2023), available at https://www.cboe.com/insights/posts/the-evolution-of-same-day-options-trading/; and
Heiner Beckmeyer, Nicole Branger & Leander Gayda, Retail Traders
Love 0DTE Options . . . But Should They? (March 30, 2023), available
at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4404704.
---------------------------------------------------------------------------
B. Economic Baseline
As noted above, under the current rule, a customer who executes
four or more day trades within five consecutive business days in a
margin account is generally designated a pattern day trader (``PDT'').
FINRA estimated the number of PDTs in two ways. The primary
estimate is based on data FINRA requested and received on PDTs from ten
members as of January 17, 2025. FINRA estimates these ten firms account
for over 85% of PDT accounts.\48\ Together, these members identified
approximately 1.3 million current customers that were designated as
PDTs. These PDTs account for 2.4% of approximately 54 million customers
with margin accounts and 0.9% of approximately 150 million total
customers at the ten firms providing data.\49\ There is substantial
variation in the proportion of PDT customers across the ten firms, with
a standard deviation of 7.8% for the percentage of customers with
margin accounts and 18% for PDTs as a proportion of all customers.
---------------------------------------------------------------------------
\48\ FINRA requested data from larger firms that have
substantial self-directed business, which are likely to have a
higher proportion of PDTs. When attempting to identify PDT accounts
using Consolidated Audit Trail (``CAT'') data as discussed below,
approximately 85% of PDT accounts originated orders from one of the
ten firms that provided data. Because this CAT data analysis is
based on the member that originated the order, this 85% may
underrepresent the coverage of data provided by these ten firms by
excluding accounts for which they clear trades.
\49\ These customers may not be distinct if they hold accounts
at multiple firms.
---------------------------------------------------------------------------
To provide additional color on the overall scope of PDT activity,
FINRA also attempted to identify the number of accounts engaged in
pattern day trading using CAT data.\50\ FINRA classified accounts of
type individual or employee as defined by CAT as PDT accounts based on
the maximum number of equity and option day trades during any
consecutive five business day period between January and March 2025.
These estimates are likely to be substantially less accurate than the
data provided by members.\51\ However, the CAT data allows FINRA to
study pattern day trading in a broader universe and in greater detail
than possible based on the data provided by the ten firms.
---------------------------------------------------------------------------
\50\ The CAT system is composed of two separate databases: the
order audit trail database (which has information on order events,
such as origination and executions of orders); and the Customer
Account Information System (``CAIS'') database (which includes
certain limited information on individual customer accounts and
account owners). FINRA did not utilize information from the CAIS
database in its analysis discussed here; thus, the data used in this
analysis does not include or rely upon any personal identifying
information related to any individual account holder. Throughout
this proposed rule change, the order trail database is referred to
as CAT.
\51\ FINRA's identification of PDT accounts using CAT data is
likely to differ from actual PDT accounts for several reasons.
First, the CAT data does not distinguish margin accounts from cash
accounts, so our accounts include cash accounts that are not
affected by the PDT requirements. Second, an account may have been
designated as a PDT account based on trading prior to our sample
period. This would result in underestimating the number of PDT
accounts and is likely to be a primary reason the member data
request identified a higher number of PDTs. Third, this analysis is
conducted at the account level whereas the PDT designation is
applied at the customer level by members. Finally, trades identified
as day trades in the CAT data may not correspond exactly to day
trades as identified by members. FINRA allows multiple methodologies
for counting day trades. See Regulatory Notice 21-13 (March 2021).
---------------------------------------------------------------------------
Using the CAT data, FINRA estimates that approximately 1.1 million
accounts qualified as PDTs based on trading activity in this three-
month time period. These account for approximately 3% of the 36 million
individual or employee accounts with at least one equity or options
trade in the sample period. Approximately 75% of PDT-qualified accounts
were well over the rule threshold with six or more day trades in a five
day period.
[[Page 1586]]
Table 1--Number of Accounts by Count of Day Trades Based on CAT Data,
January-March 2025
[Number of accounts by the maximum count of day trades they made in a 5-
Day window during the period January-March 2025, and whether they would
be classified as PDT or not PDT]
------------------------------------------------------------------------
Number of
Maximum day trades per 5 days accounts % of Total
------------------------------------------------------------------------
0, Not PDT.............................. 32,801,857 90.9
1, Not PDT.............................. 1,289,184 3.6
2, Not PDT.............................. 520,719 1.4
3, Not PDT.............................. 402,981 1.1
4, PDT.................................. 159,984 0.4
5, PDT.................................. 105,550 0.3
6+, PDT................................. 809,769 2.2
-------------------------------
Total............................... 36,090,044 100.0
------------------------------------------------------------------------
The current rule also impacts investors who day trade less
frequently than they would prefer to avoid being subject to the PDT
requirements. In particular, the $25,000 minimum equity requirement is
likely constraining the behavior of investors, particularly small
investors. Investors who cannot or will not fund the account with
$25,000 of equity must avoid being designated as PDTs to continue
trading.
FINRA does not have access to market-wide account-level information
that would permit us to directly estimate the number of accounts or
customers in this population. Table 1 shows that approximately 6% of
accounts had at least one day trade but never met the threshold for
qualifying as a PDT. The vast majority of accounts, 91% of accounts
that traded in this time period, engaged in no day trading. Customers
with few trades may be somewhat more likely to be constrained by the
PDT requirements but there may be other customers who do not currently
trade or day trade who could be affected. Information provided to FINRA
by seven of the ten firms suggests that some investors are likely
constrained by the $25,000 minimum equity requirement. Table 2 groups
these members' cash and margin accounts by the number of day trades and
amount of equity in the account.\52\ Table 2 shows the average and
standard deviation across the seven firms of the number of accounts in
each group. Cash accounts at all equity levels and margin accounts with
$25,000 or more of equity are not constrained by this minimum equity
requirement. For all of those groups, FINRA sees a clear difference in
distribution, with the largest numbers of accounts having either 1 day
trade or 4+ day trades. However, for margin accounts with less than
$25,000 in equity, FINRA sees few accounts in the 4+ day trade group.
---------------------------------------------------------------------------
\52\ The seven firms that provided information on the number of
cash and margin accounts grouped by the number of day trades and
amount of equity in the account represent 43% of the approximately
1.3 million total PDT customers and 70% of the approximately 150
million total customers in the data provided by the ten firms.
\53\ FINRA requested information based on the number of day
trades for the 5-day period of January 13, 2025 through January 17,
2025 and the equity in the account as of January 17, 2025.
Table 2--Accounts by Count of Day Trades and Equity Based on Data Provided by Members \53\
[Average (standard deviation) of number of accounts, for either cash accounts or margin accounts, for different categories of account equity and number
of day trades. The average (standard deviation) is calculated across the members that reported the data]
--------------------------------------------------------------------------------------------------------------------------------------------------------
$5,000.01 to $20,000.01 $25,000.01 $30,000.01 to
Account type Day trades 0 to $5,000 $20,000 to $25,000 to $30,000 $50,000 >$50,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cash Accounts.................. 1...................... 2,755 (4,760) 1,036 (1,143) 176 (194) 158 (165) 414 (451) 2,234 (2,930)
2...................... 1,476 (2,802) 475 (626) 82 (106) 71 (87) 185 (229) 976 (1,516)
3...................... 1,035 (2,104) 292 (430) 54 (70) 37 (49) 100 (124) 527 (802)
4+..................... 4,248 (8,834) 1,263 (2,147) 186 (264) 155 (207) 370 (442) 2,068 (2,985)
Margin Accounts................ 1...................... 7,454 (17,022) 2,733 (5,635) 429 (851) 596 (875) 1,321 (2,025) 5,185 (7,976)
2...................... 3,543 (8,000) 1,169 (2,499) 167 (346) 281 (395) 603 (895) 2,159 (3,271)
3...................... 2,707 (6,339) 802 (1,783) 112 (245) 210 (302) 405 (618) 1,317 (1,953)
4+..................... 463 (815) 236 (333) 110 (168) 984 (1,167) 1,724 (2,286) 5,233 (7,804)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Investors may avoid receiving a PDT designation either by limiting
their intraday trading or by holding positions overnight. Where
investors adapt to the rule by holding positions longer than they would
otherwise, they may take on more risk than they would prefer. The
minimum equity requirement also may cause some investors to cease
trading after being designated as PDTs. Information provided to FINRA
by members shows that accounts with under $25,000 equity are more
likely to become inactive after being designated as PDTs relative to
larger accounts or non-PDT accounts.
FINRA sought to identify the number of members that might be
impacted by the current PDT requirements. Based on members' margin
debits and credits as of June 2025, FINRA estimates approximately 78
member clearing firms are directly affected by the PDT requirements.
All of these 78 firms have customers, or may obtain new customers,
whose accounts could potentially meet the criteria to be designated as
PDTs and so need to have controls in place to identify such accounts.
Seven of these 78 firms are primarily self-directed retail firms which
are most likely to be significantly impacted by the current PDT
requirements. Thirty-six of these 78 firms are other retail firms, many
of which offer wealth management services and are less likely to be
significantly impacted by the current PDT requirements, but some of
which
[[Page 1587]]
also offer self-directed trading. Thirty-two of these 78 firms serve
primarily institutional customers and offer prime brokerage services.
Such members are generally likely to have many customers who qualify as
PDTs, but few for which the minimum equity requirement is an obstacle.
Three of the 78 firms are affiliate clearing firms for foreign banks
and unlikely to be substantially impacted by the PDT requirements.
Based on available information from Form BD and Form Custody, FINRA
identified 1,185 members that clear some or all of their equity and
options trades through one or more of the estimated 78 clearing firms
impacted by the current rule.\54\ Some of these introducing firms may
also self-clear some of their trades. Introducing firms with PDT
customers are impacted by the current PDT requirements as they are
involved in the application of these requirements and handle related
customer communications.
---------------------------------------------------------------------------
\54\ This reflects the number of introducing brokers that have a
clearing agreement with any of the clearing firms that report margin
accounts. It does not mean that the set of introducing brokers all
have customers who have margin accounts or engage in day trading.
---------------------------------------------------------------------------
Using CAT data from January through March 2025, FINRA identified
879 firms originating equity or options orders on behalf of individual
or employee accounts that resulted in at least one trade. PDT activity
appears to be highly concentrated.\55\ Ten of these firms accounted for
over 95% of identified PDT accounts. Of the 879 firms, 568 had no
accounts that met the criteria to be designated PDTs based on activity
during this time period. The firms with no PDT accounts had very little
day trading in general. Of those 568 firms, 334 had no day trades and
none had more than 100 total day trades across all customers.
---------------------------------------------------------------------------
\55\ See supra note 51 for a discussion of FINRA's
identification of PDT accounts using the CAT data.
---------------------------------------------------------------------------
Members expressed to FINRA that they expend substantial resources
responding to customer inquiries regarding the PDT requirements.
Customers have frequent questions regarding how day trades are counted
and ask for their PDT designations to be lifted.
C. Economic Impacts
Anticipated Benefits
The proposed rule change is expected to result in direct and
indirect benefits to members and the investor community. First, it
addresses gaps in the current rule regarding risks from investor
activity resulting from day trading. These risks may arise from the use
of intraday leverage, either through trading on margin or 0DTE options
or from customers holding positions open overnight to avoid the PDT
designation.
Second, the proposed rule change would alleviate the challenges
investors encounter stemming from the PDT requirements and designation
and reduce confusion with the rule and its implementation, as discussed
above. Eliminating the PDT designation is expected to ease trading
choices for investors, especially for investors with lower account
equity that would otherwise fall under the current minimum account
equity requirement. After the initial transition period, FINRA expects
a decrease in customer inquiries or complaints related to the issue of
trading throughout the day and taking on intraday risk. In addition to
the direct benefits to investors, members will benefit from lower costs
responding to such inquiries.
Under the baseline, customers who are designated PDTs and have
account equity under $25,000 have a higher probability of becoming
inactive or closing the account. The proposed rule change is expected
to reduce incentives for such customers to engage in ``firm hopping,''
a practice in which customers designated as PDTs close their accounts
(or stop trading) at one firm and open new accounts at different firms
to avoid being restricted by the PDT requirements. Doing so would
benefit members and investors in terms of minimizing the costs
associated with account opening and closure and is expected to increase
customer retention.
The proposed rule change is therefore designed to address these
gaps and challenges by removing the special margin requirements and
treatment of day trading and aligning the treatment of day trading
activity with other parts of Rule 4210(c). Removing the PDT
designation, the need to count day trades, the day-trading buying
power, and the $25,000 minimum equity requirement will reduce burdens
for investors who wish to day trade and the members that facilitate
those trades.
Removing the PDT minimum equity requirement would give investors
greater discretion in their trading activities. As discussed above,
data received from members shows relatively less day trading in margin
accounts with under $25,000 equity compared to margin accounts with
more equity or cash accounts, consistent with the PDT minimum equity
requirement constraining their trading activity. Based on calls and
inquiries received over the years, FINRA understands that the PDT
minimum equity requirement could be burdensome on smaller retail
investors. Such investors who wish to day trade may take on risk to
borrow sufficient funds away from the broker-dealer to be able to meet
the $25,000 requirement. Thus, the proposed rule change is expected to
provide relief to such investors.
Finally, removing the day trading buying power (``DTBP'')
requirements should benefit both members and investors.\56\ Members
would no longer need to accurately calculate, track, and display
customers' DTBP. Removing the DTBP requirements and replacing them with
intraday margin would give customers more flexibility in how they use
their liquidity. Customers would not need to maintain equity in an
account as of the previous day's close in anticipation of potentially
day trading. Instead, customers could fund the account as necessary to
avoid incurring an intraday margin deficit. Additionally, allowing
certain activities, such as the use of a customer's aggregate amount of
deposits at a FDIC-insured bank under a sweep program, as a credit in
the determination of the customer's IML would benefit customers by
allowing them to satisfy margin requirements while still benefitting
from the generally higher interest rates of sweep accounts. Inclusion
of bank sweep balances is expected to decrease the free credits in
customers' margin accounts,\57\ which members have expressed would
benefit them from an operational perspective by reducing unnecessary
transactions.
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\56\ See supra note 8.
\57\ Pursuant to FINRA Rule 4521(d), FINRA members carrying
margin accounts for customers are required to submit, on a
settlement date basis, as of the last business day of the month, the
following customer information: the total of all debit balances in
securities margin accounts; and the total of all free credit
balances in all cash accounts and all securities margin accounts.
The data is aggregated across members and made available on FINRA's
website at https://www.finra.org/rules-guidance/key-topics/margin-accounts/margin-statistics. The historical data shows a trend of
growth in the aggregate debit balance and aggregate free credit
balance in customers' securities margin accounts.
---------------------------------------------------------------------------
The proposed rule change gives members some discretion in their
implementation of the rules. First and foremost, members would have the
discretion to choose between a single margin calculation at the end of
the day that reflects the largest intraday margin deficiency, or
multiple margin calculations throughout the day. The treatment of the
margin deficiency in the former would align with the current
requirements for maintenance margin deficiencies at the end of day in
other parts of Rule 4210, except that it would reflect intraday margin
deficits. This method may be less difficult for members to implement
and manage.
[[Page 1588]]
The method of multiple calculations could benefit both members and
their customers. For members, it would provide the ability to manage
intraday risk and increase margin requirements intraday, as needed,
potentially enhancing protections for the member and its customers. For
customers, multiple calculations would enable the use of prices closer
to real time prices. When prices move in a favorable direction for the
customer, this could relax margin constraints. The use of multiple
calculations or intraday margin monitoring could reduce investor risk
in terms of major market events and conversely allow members to
increase margin requirements as needed throughout the day.
Anticipated Costs
FINRA believes that the proposed rule change would result in direct
and indirect costs to members and investors. Clearing and introducing
firms that have accounts engaging in day trading would likely incur
technology-related implementation costs. These costs would stem from
unwinding the current technological infrastructure associated with
identifying, monitoring and, where necessary, limiting day trading, and
building or adapting and implementing new infrastructure to monitor
customers' IMLs. FINRA expects new infrastructure costs would be
mitigated by the choice of aligning the proposed rule change with the
current requirements of Rule 4210.
The costs of building systems to determine customers' intraday
margin deficits will vary across members. The costs associated with
single intraday margin calculation are expected to be lower than those
associated with multiple intraday margin calculations. Members that
possess intraday risk monitoring technology or pre-trade monitoring
systems that prevent customers from incurring intraday margin deficits,
are expected to utilize their existing systems and incur lower costs
resulting from the proposed rule change. Members that do not possess
such capabilities may choose to invest and would be expected to incur
significant start-up costs, which may be offset by potential future
gains in business and reduced risk exposure. Members could seek to
build their own solutions or rely upon third-party providers, as best
meets their business needs.
Members impacted by the proposed rule change would also likely
incur non-technology-related implementation costs in the transition
from the current rule. These will stem from three main sources. First,
members would need to update their written supervisory procedures
(``WSP''), in compliance with FINRA Rule 3110, including documenting
the choices made in the implementation of the rule. Second, members
would need to provide appropriate training to their staff to comply
with and implement the proposed rule change, as well as how to handle
or address customer inquiries or complaints. Third, members may need to
invest in revising various related investor-facing communications.
FINRA does not expect any increase in these costs relative to the
burden of the current rule after the initial transition.
As discussed above, the proposed rule change would lift the
existing PDT requirements that pose some trading restrictions on retail
investors. The resulting potential increase in trading activity,
especially by retail investors with lower account equity, could expose
these investors to increased intraday risk. Members may incur costs
from such risks, although the extent of the risk will be limited by the
intraday margin requirements. In addition to potentially increasing
intraday risk, it is also possible that an increase in retail trading
activity could impact market volatility and liquidity. However,
evidence on the relationship between retail trading activity and market
quality is mixed.\58\ Finally, it is possible that, especially at the
beginning of the implementation of the new rule while investors and
members adapt to it, there would be an increase in margin calls.
---------------------------------------------------------------------------
\58\ For example, Eaton et al. (2022) study outages at retail
brokerages and find that ``unsophisticated'' retail trading is
negatively associated with market quality. The authors attribute
this effect to herding by retail traders increasing the inventory
risk of market makers. However, they also find that other retail
trading is associated with decreased volatility and higher
liquidity. Peress and Schmidt (2020) find that reduced retail
trading due to distracting news events is associated with lower
liquidity and lower volatility. Foucault et al. (2011) find a reform
that reduced retail trading by increasing the cost of margin trading
for retail investors in the French stock market decreased volatility
but had mixed impacts on different measures of liquidity. Ozik et
al. (2021) find that retail trading alleviated increases in
illiquidity during the COVID-19 crisis.
See Gregory Eaton, T. Clifton Green, Brian Roseman & Yanbin Wu,
Retail Trader Sophistication and Stock Market Quality: Evidence from
Brokerage Outages, 146(2) Journal of Financial Economics 502-528
(2022); Joel Peress & Daniel Schmidt, Glued to the TV: Distracted
Noise Traders and Stock Market Liquidity, 75(2) Journal of Finance
1083-1133 (2020); Thierry Foucault, David Sraer & David Thesmar,
Individual Investors and Volatility, 66(4) Journal of Finance 1369-
1406 (2011); Gideon Ozik, Ronnie Sadka & Siyi Shen, Flattening the
Illiquidity Curve: Retail Trading During the COVID-19 Lockdown,
56(7) Journal of Financial and Quantitative Analysis 2356-2388
(2021).
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Members that provide clearing services to introducing brokers may
pass on costs incurred due to the proposed rule change to the
introducing brokers. In addition to the implementation costs discussed
above, these clearing firms may incur additional costs related to their
introducing brokers. If a clearing firm is able to implement the
proposed rule change more quickly than some of its introducing broker
customers, this may result in delays or additional technological costs
for the clearing firm associated with maintaining parallel systems
during the transition. If introducing firms choose to take on customers
who pose additional risk due to their day trading activity as a result
of the proposed rule change, this could pose new and additional risks
to the clearing firm. To manage and mitigate this risk, clearing firms
may choose to increase the clearing deposit requirements from their
correspondents or revisit their carrying agreements to account for such
changes. From the introducing brokers' perspective, additional costs
could arise if they clear through multiple clearing firms, and those
firms implement the proposed rule change in different ways with
different intraday margin policies.
Finally, expanding the scope of securities activities covered under
the intraday margin requirements from the scope of activities covered
under the current day trading requirements is expected to result in
additional costs to some members and customers. These are expected to
be both direct, in terms of including additional customer activity in
the margin calculations and requirements, as well as indirect costs in
terms of the potential changes in investor behavior around these
activities.
Anticipated Competitive Impacts
FINRA believes there is potential for competitive effects across
members that may arise from differences in implementation costs based
on business model and current risk controls and systems.
Some members may be able to implement the proposed rule change more
quickly or for less cost, which may give them some competitive
advantages in attracting or retaining customers during the transition
period. For example, members that currently use pre-trade monitoring to
prevent customers from incurring intraday margin deficits may be able
to more easily and quickly comply with the proposed intraday margin
requirements. This, in turn, may permit them to more quickly offer
customers in margin accounts more opportunities to trade. The value of
this competitive advantage should be short-lived (vanishing as all
members implement the intraday
[[Page 1589]]
margin requirements) and may be of greater value in the market for new
account holders than for existing account holders, who would incur
costs to move their accounts to another firm. However, members that
attract additional customers during the implementation period may
continue to benefit from retaining those customers.
Members with multiple clearing arrangements and their customers may
be disadvantaged if their clearing partners choose to implement the
proposed rule change in different ways. Such members would incur costs
associated with building systems and processes to handle multiple
implementations or altering their clearing arrangements.
In the long term, FINRA does not expect the proposed rule change to
have substantial competitive impacts. Firms are expected to balance the
costs of implementation decisions with the demand from potential
customers.
D. Alternatives Considered
FINRA has considered possible alternatives to the proposed rule
change. For example, FINRA considered eliminating the day trading
margin requirements without adopting new intraday margin requirements.
This alternative would remove the unnecessary burdens on firms and
customers associated with complying with the PDT requirements without
imposing the costs of implementing new systems or requirements.
However, FINRA believes it would not adequately address risks arising
from customers' intraday trading activities. FINRA further considered
increasing the number of day trades required for a customer to be
designated a PDT. Although this alternative would reduce the number of
customers designated as PDT, depending on the threshold chosen, it
would result in either an outcome where many customers would still be
burdened by the PDT requirements or an outcome that may not adequately
address risks arising from customers' intraday trading activities. As
shown in Table 1, FINRA estimates 75% of PDT accounts have at least 6
day trades in a five-day window. Under this alternative, firms would
also continue to be required to comply with the requirements to
identify and apply restrictions to PDT accounts. Finally, FINRA
considered amending the PDT requirements to decrease the minimum equity
requirements for PDTs. While such an alternative would reduce what is
considered a significant burden for small retail investors who are
designated as PDTs, under this alternative firms would still need to
comply with the requirements to identify and apply restrictions to PDT
accounts. FINRA believes that these alternatives would not sufficiently
address risks that are not covered by the current rule as discussed
above, nor sufficiently address unnecessary burdens to investors or
members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments on this specific proposal were neither solicited
nor received.
As discussed above, in October 2024, FINRA issued Regulatory Notice
24-13 \59\ to commence a retrospective review of the requirements
governing day trading \60\ to assess their effectiveness and
efficiency. FINRA received approximately 65 comments in response to
Regulatory Notice 24-13. The comments reflected a broad set of
perspectives, including customers, small and large firms, industry
groups and financial professionals. Most of the comments FINRA received
called upon FINRA to either significantly change or altogether abolish
the day trading margin requirements under Rule 4210. The comments FINRA
received helped to inform the development of the proposed rule change,
including the proposed removal of the $25,000 minimum equity
requirement and the day-trading buying power limitations for customers,
and the proposed establishment of new intraday margin requirements.
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\59\ See supra note 15.
\60\ The retrospective review as announced in Regulatory Notice
24-13 included both the day trading margin requirements and FINRA's
rules that govern approval procedures for day-trading accounts (Rule
2130) and specified risk disclosures that address day trading (Rule
2270). As discussed in note 22, FINRA is deferring consideration of
Rule 2130 and Rule 2270 until any further action on the day trading
margin requirements under Rule 4210 is complete. As such, Rule 2130
and Rule 2270 are not within the scope of this proposed rule change.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2025-017 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2025-017. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the filing will be available for inspection and copying at
the principal office of FINRA. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to File Number
SR-FINRA-2025-017 and should be submitted on or before February 4,
2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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\61\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-00519 Filed 1-13-26; 8:45 am]
BILLING CODE 8011-01-P