FINRA and the NYSE, as part of a small investor protection agenda, instituted regulations intended to limit the amount of trading that can be done in accounts with small amounts of capital, specifically accounts with less than 25,000 USD Net Liquidation Value. Pattern Day Trading rules will not apply to Portfolio Margin accounts.

■    Day Trade: any trade pair wherein a position in a security (stock, single-stock future (SSF), bond or stock option) is increased ("opened") and thereafter decreased ("closed") within the same trading session.

■    Pattern Day Trader: someone who effects 4 or more Day Trades within a 5 business day period. A trader who executes more than 4 day trades in this time is deemed to be exhibiting a ‘pattern’ of day trading and is thereafter subject to the PDT restrictions.

■    In order to day trade, the account must have at least 25,000 USD in Net Liquidation Value, where Net Liquidation Valueincludes cash, stocks, options, and futures P+L.

■    The NYSE regulations state that if an account with less than 25,000 USD is flagged as a day trading account, the account must be frozen to prevent additional trades for a period of 90 days. Place Trade has created algorithms to prevent small accounts from being flagged as day trading accounts, to avoid triggering the 90 day freeze. Place Trade implements this by prohibiting the 4^th opening transaction within 5 days if the account has less than 25,000 USD in equity.

The previous day's equity is recorded at the close of the previous day (4:15 PM ET). Previous day's equity must be at least 25,000 USD. However, net deposits and withdrawals that brought the previous day's equity up to or greater than the required 25,000 USD after 4:15 PM ET on the previous trading day are handled as adjustments to the previous day's equity, so that on the next trading day, the customer is able to trade.

For example, suppose a new customer's deposit of 50,000 USD is received after the close of the trading day. Even though his previous day's equity was 0 at the close of the previous day, we handle the previous day's late deposit as an adjustment, and this customer's previous day equity is adjusted to 50,000 USD and he is able to trade on the first trading day. Without this adjustment, the customer's trades would be rejected on the first trading day based on the previous day's equity recorded at the close.

■    Accounts that at one time had more than 25,000 USD, were identified as accounts with day trading activity, and thereafter the Net Liquidation Value in the account dropped below 25,000 USD, may find themselves subject to the 90 day trading restriction. The restrictions can be lifted by increasing the equity in the account or following the release procedure located in the Day Trading FAQ section.

■   The proceeds of an option exercise or assignment will count towards day trading activity as if the underlying had been traded directly. Deliveries from single stock futures or lapse of options are not considered part of a day trading activity.

What is a Day Trader?

FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects four or more day trades (same day opening and closing of a given equity security ("stock") or equity option) within a five business day period.

Note that Futures contracts and Futures Options are not included in the SEC Day Trade rule.

What is the definition of a "Potential Pattern Day Trader"?

A potential pattern day trader error message means that an account has less than the SEC required $25,000 minimum Net Liquidation Value AND the number of available day trades (3) has already been used within the last five days.

The Place Trade system is programmed to prohibit any further trades to be initiated in the account, regardless of the intent to day trade that position or not. The Place Trade system is programmed to protect the accounts with less than $25,000 so the account would not “potentially” be flagged as a day trading account.

If an account receives the error message “potential pattern day trader”, there is no PDT flag to remove. The account holder will need to wait for the five-day period to end before any new positions can be initiated in the account.

What happens if an account with less than $25,000 is flagged as a day trading account? Or, if the account is flagged as a PDT account, and the value subsequently falls below the SEC required $25,000 minimum (intraday included)?

The customer has the following options:

A. Deposit funds to bring the account’s equity up to the SEC required minimum of $25,000
B. Wait the required 90 day period before any new positions can be initiated
C. Request a PDT account reset

If the intraday situation occurs, the customer will immediately be prohibited from initiating any new positions. Customers should be able to close any existing positions in his account, but will not be allowed to initiate any new positions.

The customer will have the same options listed above, however, if at any time the Net Liquidation Value figure goes back above the threshold amount ($25,000), then the account will once again have unlimited day trades available.

What is a PDT account reset?

FINRA has provided brokerage firms the ability to remove the PDT flag from a customer’s account once every 180 days. If an account was erroneously flagged, and the customer’s intent is not to day trade in his/her account, Place Trade has the ability to remove this flag. Once the PDT flag is removed, the customer will then be allowed three day trades every five business days. If an account gets re-flagged as a PDT account within 180 days after the reset, the customer then has the following options:

A. Deposit funds to bring the account’s equity up to the SEC required minimum of $25,000
B. Wait the required 90 day period before any new positions can be initiated

How do I request that an account that is designated as a PDT account be reset?

FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects 4 or more day trades (same day purchase and sale of a given equity security ("stock") or equity option) within a five-day period, and NYSE and FINRA rules place certain restrictions on those who are deemed to be pattern day traders. If an Place Trade (PT) account effects three (3) day trades involving stocks or equity options within any five (5) day period, PT will require that such account satisfy the minimum Net Liquidation Value requirement of $25,000 before PT will accept the next order to purchase or sell a stock or equity option. Once the account has effected a fourth day trade (in such 5 day period), PT will deem the account to be a PDT account.

Pattern Day Trading regulations allow a broker to remove the PDT designation if the client acknowledges that she/he does not intend to engage in day trading strategies, and requests that the PDT designation be removed.

If you wish to have the PDT designation for your account removed, provide PT with the following information in a letter using the Customer Service Message Center in Account Management:

1.   Provide the following acknowledgements:

■     I do not intend to engage in a day trading strategy in my PT account.

■     I hereby request that PT no longer designate my account as a "Pattern Day Trading" account under NYSE and FINRA rules.

■     I understand that if, following this acknowledgement I engage in Pattern Day Trading, my account will be designated as a "Pattern Day Trading" account, and PT will apply all applicable PDT rules to my account.

2.  Log into Account Management, and then click the Message Center icon in the upper left corner of the Account Management menu pane. Create a ticket in the Message Center, and then paste the aforementioned acknowledgements, your account number, your name, and the statement “I agree” into the ticket form. Submit the ticket to Customer Service. We will process your request as quickly as possible.

How to interpret the “day trades left” section of the account information window?

For example, if the window reads (0,0,1,2,3), here is how to interpret this information:

If today was Wednesday, the first number within the parenthesis, 0, means that 0-day trades are available on Wednesday. The 2^nd number in the parenthesis, 0, means that no day trades are available on Thursday. The 3^rd number within the parenthesis, 1, means that on Friday 1-day trade is available. The 4^th number within the parenthesis, 2, means that on Monday, if 1-day trade was not used on Friday, and then on Monday, the account would have 2-day trades available. The 5^th number within the parenthesis, 3, means that if no day trades were used on either Friday or Monday, then on Tuesday, the account would have 3-day trades available.

Day Trading Examples

■     On Monday, 1000 shares of XYZ stock are purchased. Later on that same day, 1000 shares of XYZ stock are sold. This is considered to be a day trade.

■     On Wednesday, 1000 shares of XYZ stock are purchased. Later on that same day, 500 shares of XYZ stock are sold. This is considered to be a day trade.

■     On Monday, 500 shares of XYZ stock are purchased. Later on that same day, another 500 shares of XYZ are purchased. In afterhours trading on Monday, 1000 shares of XYZ are sold. This is considered to be 1-day trade.

■     On Monday, 500 shares of XYZ stock are purchased. On Tuesday, another 500 shares of XYZ stock are purchased. Later on Tuesday, 500 shares of XYZ stock are sold. This is considered to be 1-day trade.

■     On Thursday, 500 shares of XYZ stock are purchased in pre-market. In afterhours trading on Thursday, 200 shares of XYZ stock are sold. This is considered to be a day trade.

■     On Monday, customer sells short 10 YXX September 2005 90 calls and simultaneously buys 10 YXX December 2005 95 calls (combination order type). Later on Monday, customer buys back 5 YXX September 2005 90 calls and sells 5 YXX December 2005 95 calls for a profit. This is considered to be 2 day trades (one day trade for each leg of the spread).

■     On Thursday, customer buys 500 shares of YXZ stock. Later on Thursday, customer sells 1500 shares of YXZ stock (reversal creates new short position). On Friday, customer purchases 1000 shares of YXZ stock. This would be considered to be 1-day trade.

Non-Day Trading Examples

■     On Monday, 500 shares of XYZ stock are purchased. On Tuesday, another 500 shares of XYZ stock are purchased. On Wednesday, 1000 shares of XYZ stock are sold. None of these are considered to be day trades.

■     On Thursday, customer buys 500 shares of YZZ stock. On Friday, customer sells 500 shares of YZZ stock. Later on Friday, customer buys 500 shares of YZZ stock. This is not considered to be a day trade.

■     On Friday, 1000 shares of XYZ stock are purchased. On the following Monday, 1000 shares of XYZ stock is sold. This is not considered to be a day trade.

• < Prev
• Next >