Day Trading Margin Requirements/NASD Pattern Day Trading Rules
Effective September 28, 2001, the National Association of Securities Dealers (NASD) enacted changes to day-trading margin requirements, which may affect your account.
The NASD provides that a pattern day trader is any account that executes four or more round-trip day trades within any rolling five-business-day period. Day trading is the practice of purchasing and selling, or short selling and purchasing to cover, the same security (equities or options) in the same trading day within a margin account.
If activity in your account is classified as pattern day trading, you may be subject to the following restrictions:
Minimum Equity Requirement
A pattern day trader's account must maintain a day trading minimum equity of $25,000 on any day on which day trading occurs. Day trade equity consists of marginable and non-marginable positions. Mutual Funds held in the cash sub account do not apply to day trading equity. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement should not day trade. If a day trade is executed when the equity is below $25,000, your account will be restricted to closing transactions only for 90 days, or until the day trading equity is brought up to $25,000. Please be sure that any deposit made to bring the equity above $25,000 is in the account one business day prior to resuming day trading.
Day Trade Buying Power Day trade buying power is the amount of funds the account can use to day trade intra-day under the NASD Pattern Day Trading Rules. Day trade buying power is equal to the equity in your account at the close of business on the previous day, less the Self Regulatory Organization (SRO) requirements, multiplied by as much as four. (See "How is day trade buying power calculated," below.) Day trade buying power is only displayed if your account has been flagged as a pattern day trader. Day trade buying power is calculated with the intent that it is used for day trading activities.
Day Trade Minimum Equity Call If your account has less than $25,000 equity and is identified as a pattern day-trading account, a day-trading minimum equity call will be issued. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement should not day trade. If a day trade is executed when the equity is below $25,000, your account will be restricted to closing transactions only for 90 days, or until the day trading equity is brought up to $25,000. Please be sure that any deposit made to bring the equity above $25,000 is in the account one business day prior to resuming day trading.
Day Trade Buying Power Call When an account exceeds the day trade buying power at any time throughout the day, a day trade buying power call may be issued. Once a day trade buying power call is issued, the day-trading buying power is restricted to the 2x SRO calculations for five business days. If the day trade buying power call is not met within five business days, the account will be restricted to trading only long positions on a cash-available basis for 90 days, or until the call is met. Multiple day trade buying power calls will result in a cash restriction, no matter when the day trade buying power calls are due.
Day trade buying power calls can only be met by depositing cash or fully paid securities, by selling non-marginable securities (that were in the account prior to the call being issued), or waiting out the 90 day cash restriction. Funds deposited in an account to satisfy a day trade buying power call must remain in the account two business days for bank wires and 5 or 10 days respectively for electronic (ACH) deposits or checks. Day trade buying power calls do not have to be met; no forcible sell out will result from a day trade buying power call.
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