Background

Because Regulation T initial

margin requirements and NASD/

NYSE standard maintenance

margin requirements3 are calculated

only at the end of each day, a

day trader who has no positions in

his or her account at the end of the

day would not incur a Regulation

T initial margin nor a standard

maintenance margin requirement,

assuming no losses in the account

from that day’s trading. Current

NASD/NYSE initial margin provisions,

however, generally require

a customer to deposit margin of at

least $2,000, unless in excess of

the cost of the security.

Although the day trader may end

the day with no position, the day

trader’s clearing firm is at risk during

the day if credit is extended.

To address this risk, the NASD

and NYSE require day traders to

demonstrate that they have the

ability to meet the initial margin

requirements for at least their

largest open position during the

day. Specifically, under current

margin requirements, a customer

who meets the definition of day

trader under the rule must deposit

in his or her account the margin

that would have been required

under Regulation T (i.e., the 50

percent initial margin requirement)

if the customer had not liquidated

the position during the trading day.

If the customer day trades, but is

not considered a “day trader,” the

customer is still required to post 25

percent of the position held during

the day.4 Currently, this payment is

due after the risk has been incurred.

Therefore, the funds are not available

during the trading day when

the clearing firm is at risk.

Currently, if a customer’s day trading

results in a day-trading margin

call, the customer has seven days

to meet the call by depositing cash

or securities in the account.

Because day traders typically end

the day flat and this day-trading

“margin” deposit is not securing a

margin loan, the customer is not

required to leave the margin

deposit in the account and may

withdraw the deposit the day after

the deposit is made. If the customer

fails to meet a day-trading

margin call, no specific action to

the customer account is required

to be taken by the firm. There are

no securities to liquidate, as there

would be for an existing position,

because day traders typically end

the day flat.