SEC ends $25,000 PDT rule; brokers can tie margins to exposure

The Securities and Exchange Commission on April 14 approved FINRA’s proposal to eliminate the $25,000 minimum equity requirement for pattern day traders and to remove the “pattern day trader” designation. The change to FINRA Rule 4210 shifts the standard from a flat $25,000 account minimum to equity levels that reflect a customer’s actual market exposure during the trading day.

Under the revised Rule 4210, broker-dealers may set margin requirements based on measured intraday exposure. Existing initial and regular maintenance margin obligations under Rule 4210 remain in place. The update explicitly covers zero-days-to-expiration (0DTE) options and applies to accounts at FINRA member firms.

Firms may meet the rule through real-time monitoring that blocks trades before intraday margin limits are breached or by performing a single end-of-day calculation to measure each account’s highest intraday exposure. Accounts that fail to cure intraday margin deficits on a repeated basis within five business days will face a 90-day restriction on creating or increasing short positions or debit balances.

FINRA’s notice exempts small deficits and extraordinary events from triggering the restriction. Deficits below the lesser of 5% of account equity or $1,000, and deficits caused by extraordinary circumstances, will not automatically produce the 90-day freeze. The notice said the change is intended to reduce intraday exposure risks while giving customers more freedom to trade and lowering compliance costs for firms.

The new rules take effect 45 days after FINRA publishes a Regulatory Notice. Firms that need additional time to upgrade systems will have an 18-month phase-in period from the date of that notice to implement the required monitoring or reporting capabilities.

The original pattern day trader rule was adopted in 2001 after heavy retail losses during the dot-com crash. That rule required customers who executed four or more day trades within five business days to hold at least $25,000 in their accounts; brokers would restrict day trading if balances fell below that level. Under the approved framework, broker-dealers will set margin standards tied to measured intraday exposure, while customers remain subject to other margin rules and any firm-specific requirements.