The Day Trading Regulations A Brief Summary Since September 28, 2001, the NASDâs and NYSEâs new set of industry-wide regulations regarding day trading have been in effect. These regulations established new industry-wide definitions, thresholds, and regulations. We urge you to read the following FAQâs to learn about the NASD/NYSEâs day trading rules. 1. What is the definition of a Day Trade? A day trade is the purchase and sale (or short sale and purchase) of the same security on the same day in a single account. 2. What is not a Day Trade? Liquidation of overnight positions (or purchase to cover a previous dayâs short sale) of the same security the next day will no longer be considered a Day Trade. 3. Does the rule apply to day trading options? Yes. The day trading margin rule applies to day trading in any security, including options. 4. Does this rule apply only if I use leverage? No, the rule applies to all day trades, whether you use leverage (margin) or not. For example, many options contacts require that you pay for the option in full, that is at 100%. As such, there is no leverage used to purchase the options. Nonetheless, if you engage in numerous options transactions during the day you are still subject to intra-day risk. You may not be able to realize the profit on the transaction that you had hoped for and may indeed incur substantial loss due to a pattern of day-trading options. Again, the day trading margin rule is designed to require that funds be in the account where the trading and risk is occurring. 5. What is a Pattern Day Trader? If you day trade 4 or more times in 5 business days within a single account, you are a Pattern Day Trader. 6. What if I haven't been a Pattern Day Trader? Is my account considered a Day Trading Account? Yes, your TrackTrade account is automatically considered a Day Trading Account, by definition. It does not depend upon your trading pattern because industry regulations state that accounts specifically designed for day trading are automatically Day Trading Accounts. 7. What is the formula for calculating Day Trade Buying Power (DTBP)? The regulations allow DTBP that is four times maintenance excess. This increased leverage is not automatically available in your account, but may be available upon request However, if there is an outstanding Day Trading Call in your account, increased DTBP will not be available until the call is met. The Basic Formula for Day Trade Buying Power: 4 X Maintenance Excess = DTBP How to Calculate Maintenance Excess: Total Positions + Total Cash = Total Equity Total Equity - Non-Marginable Positions = Margin Equity Margin Equity - Maintenance Requirement = Maintenance Excess The value of positions is based on the Mark to the Market (closing prices from the previous trading day). 8. What are the Minimum Equity Requirements for Day Trading Accounts? All accounts that are classified as day trader accounts must maintain a minimum equity of $25,000. Track Data Securities requires $30,000 to establish the account. 9. What will happen if my Day Trading Account falls below the minimum equity balance? A minimum equity call is issued. Your account will trade on a cash basis only until funds are received to meet the minimum equity amount. This means that all opening positions will be held at 100% aggregate. 10 . How can I get enough funds into my account to meet the $25,000 minimum? A Minimum Maintenance Call is issued. The call should be paid for by the next business day. If this call is not met on time, any and all marginable securities in the account may be liquidated to meet this call. In addition, the account will be reduced to 1 times buying power and all positions will be held at 100% aggregate. Please contact our margin department for any questions you may have. 11. When is a Day Trading Call generated? A Day Trading Call is generated when you exceed your Day Trading Buying Power at any time of the day. Our software has safeguards designed to prevent you from exceeding your Buying Power, but the ultimate responsibility for following the guidelines is yours. 12. How long do I have to cover a Day Trading Call? You have trade date plus five business days (T+5) to cover the call. Note: until you meet the call you will trade at 1*aggregate cash. All opening positions will be held at 100%. 13. What happens if a Day Trading Call is not met by T + 5? If a call is not met by T+5, the account will continue to trade at 1*aggregate cash, with all opening positions held at 100% for 90 days or until the call is met. If you receive and fail to meet a second daytrading call, your account will be restricted to liquidating transactions for 90 days. 14. How can the Day Trading Call be met? The call can be met by depositing cash equal to the amount of the call or fully-paid-for-margin-eligible securities in two times the amount of the call. You cannot liquidate positions to cover this type of call. 15. Can I withdraw funds deposited into my account to meet a Day Trading Call or the minimum equity requirements immediately after they are deposited in to the account? No, funds used to meet a Day Trading Call or the Day Trade Margin Account minimum equity requirements must remain in the account for at least 2 business days following the close of business on any day in which the deposit is received. The funds deposited into the account are still subject to our standard rules of deposit, however. For example, if you pay by check, you may not withdraw that money for eleven business days. 16. If I have a Day Trading Account, why should I be at all concerned with Overnight Buying Power (OBP) since Iâll get Day Trading Buying Power (DTBP)? Although you may be allowed to have extra Buying Power in a Day Trading Account, you can only use it for Day Trading. Track Data Securitiesâ policy prohibits the use of DTBP for overnight purchases. If you use DTBP for trades that are kept overnight, you risk incurring a Reg T call. See the following example: At the end of Day 1. . . youâre flat. You have $25,000 in your account (all cash) overnight. Thus, for the beginning of Day 2. . . you have DTBP of $100,000 OBP of $50,000 During the trading day of Day 2, you use much of your DTBPâat one point during the trading day, youâre using $90,000 in buying power. That would be fine, BUT at the end of Day 2. . . you arenât flat. You hold $60,000 in securities and no cash. You may have thought you were okay because you didn't exceed DTBP, but thatâs not the way it works. You have exceeded OBP and will get a Reg T Call, probably the morning of Day 3. You will have 5 days to meet this Reg T call. You must meet this call by depositing $5,000 in cash or $10,000 in fully paid-for marginable securitiesâthe call cannot be met simply by liquidating existing positions in your account. In short, if you arenât going to be flat at the end of the day, be careful. Watch your OBP. [Please note: regular margin rules still apply in this situation. Thus, in addition to the Reg T call described above, you could also be subject to a House Call or Fed Call.] 17. Previously, most Day Trading Calls were generated by the liquidation of an overnight position and then repurchasing/shorting that same position overnight again. Will this activity still cause a Day Trading Call? No, this activity will no longer cause a Day Trading Call. The new rules treat the sale of an existing overnight position as a liquidation and the repurchase of the security as a new position. Therefore, this activity will not be considered a day trade and will not be subject to the rules affecting day trades. Of course, if you trade a third time before the end of the second day, selling the security you repurchased that morning, it would count as one day trade. 18. Can I cross guarantee my accounts to meet and maintain the new minimum margin equity requirement? No, each account (not client) is required to meet applicable requirements independently, using only the financial resources available in the account. 19. Once the Pattern Day Trader label is applied to me, does it mean that it's applied to all my accounts with Track Data Securities, including my myTrack accounts? No, it's on an account by account basis. The designation of an account as a Day Trading Account or being considered a Pattern Day Trader does not spill over to any of your other Track Data Securities accounts. 20. Is this industry-wide? Do all brokers have to comply with these rules? Yes, the new day trading rules are NASD/NYSE requirements that will have to be followed by all brokers. 21. But I heard from another brokerage firm that their Day Trading rules are less stringent. Some customer service representatives at other firms give this impression, probably because they have not yet been properly educated on the rules. But in the end, these new Day Trading rules apply to all firms - there is no room for interpretation, no discretion to allow exceptions.