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Requirements For Accounts That Actively Day Trade On Friday, September 28th,
2001, the National Association of Securities Dealers (NASD) will implement
new account requirements that were approved earlier this year by the
Securities and Exchange Commission (SEC). The amendment approved will update
NASD Rule 2520. This rule will set the guidelines for investment accounts
that use a trading strategy commonly known as Day Trading. The amendment
establishes new requirements for customers who actively day trade (known as
pattern day traders).
The newly updated rules will only affect customers who are classified as
pattern day traders. The NASD definition under rule 2520, defines a pattern
day trader as "any customer who executes four or more day trades within five
business days, provided the number of day trades is more than 6% of the total
trades in the account during that period". In addition to this new definition
of a pattern day trader, the following amendments will be in effect on Friday
September 28th, 2001:
· Higher equity requirement. The minimum equity requirement for pattern day
traders will be $25,000.
· Clarification on the term day trade. Redefines the term "day trade" to
treat the sale of an existing position held from the previous day as a
liquidation, and the subsequent repurchase of that position as the
establishment of a new position not subject to the day trading margin
requirements.
· Day Trading Buying Power. Day trading buying power is calculated based on
the customer's account position as of the close of business on the previous
day. The amendments limit day trading buying power to four times the day
trader's maintenance margin excess.
· Margin account requirement. All patterned day trades must be placed in a
margin account. Trading in a cash account is limited to available settlement
date balances in accordance with Regulation T and NASD Rule 2520.
NASD Rule 2520..
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