Information Memo

ATTENTION: CHIEF EXECUTIVE OFFICER, MANAGING PARTNERS, CREDIT

AND MARGIN DEPARTMENTS, COMPLIANCE AND LEGAL

DEPARTMENTS

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

.30.

• The minimum equity requirement for pattern day traders is $25,000. See Rule 431

(f)(8)(B)(iv)(1).