ATTENTION: CHIEF EXECUTIVE OFFICER, MANAGING PARTNERS, CREDIT
AND MARGIN DEPARTMENTS, COMPLIANCE AND LEGAL
TO: MEMBERS AND MEMBER ORGANIZATIONS
SUBJECT: AMENDMENTS TO RULE 431 ("MARGIN REQUIREMENTS")
REGARDING "DAY TRADING"
The Securities and Exchange Commission (“SEC”) has approved amendments to Exchange Rule
431 (“Margin Requirements”) (see Exhibit A) establishing new requirements to address the
intraday risks associated with day trading in customer accounts.1 The amendments require that
equity and maintenance margin be deposited and maintained in customer accounts that engage in
a pattern of day trading in amounts sufficient to support the risks associated with such trading
activities. Margin requirements will be based on a day trader's activities during the day, rather
than on open securities positions at the end of the day. Additionally, the amendments prohibit
the use of cross guarantees and early withdrawal of account equity as these practices do not
require customers to demonstrate actual financial ability to engage in day trading. THE
EFFECTIVE DATE FOR IMPLEMENTATION WILL BE AUGUST 27, 2001.
The significant changes are summarized below:
• The term "pattern day-trader" is defined 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. See Rule 431 (f)(8)(B)(ii).
If the member organization knows, or has a reasonable basis to believe that a customer who
seeks to open an account, or seeks to resume day trading in an existing account will engage
in pattern day trading, then, the customer must immediately be considered a pattern day
trader in lieu of waiting five business days. See Rule 431 (f)(8)(B) Supplementary Material
• The minimum equity requirement for pattern day traders is $25,000. See Rule 431