Day-trading Margin Requirements

Effective September 28, 2001, the NASD enacted changes to day-trading margin requirements, which may affect your account.

The NASD provides that a pattern day trader is any account that executes four or more round-trip day trades within any rolling five-business-day period, provided the number of day trades represents at least 6% of the total trading activity during the same five-business-day period. Day trading is the practice of purchasing and selling, or short selling and purchasing to cover, the same security in the same trading day within a margin account.

If activity in your account is classified as "pattern day trading," you may be subject to the following restrictions:

    Minimum Equity Requirement – A pattern day trader's account must maintain a minimum equity of $25,000 at the start of any day in which day trading occurs. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement will not be allowed to day trade. If a day trade is executed when the equity is below $25,000, the account will be restricted to closing transactions only for 90 days, or until the equity is brought up to $25,000.

    Day-Trading Buying Power – Day-trading buying power is equal to the equity in your account at the close of business the previous day, less the Self-Regulatory Organization (SRO) requirements, multiplied by up to four. Accounts that are engaged in day-trading activities should consider being limited to day-trading buying power.

    Day-Trading Minimum Equity Call – If your account has less than $25,000 equity and is identified as a pattern day-trading account, a day-trading minimum equity call will be issued. Pattern day-trader accounts that fall below the $25,000 minimum equity requirement will not be allowed to day trade. If a day trade is executed when the equity is below $25,000, your account will be restricted to closing transactions only for 90 days, or until the equity is brought up to $25,000. Funds deposited in an account to satisfy a day-trading minimum equity call are subject to our 10-business-day hold policy with the exception of wires, which must remain in the account for two business days.

    Day-Trading Buying Power Call – If your account meets the minimum equity requirements for day trading and exceeds the day-trading buying power at any time throughout the day, a day-trading buying power call is issued. Once a day-trading buying power call is issued, the day-trading buying power is restricted to two times SRO excess for five business days unless the call is met earlier. If the day-trading buying power call is not met within five business days, the account will be permitted to execute transactions only on a cash-available basis for 90 days, or until the call is met. Multiple day-trading buying power violations may result in a restriction limiting transactions to a cash-available basis as well. Day-trading calls can only be met by depositing cash or fully paid-for securities, by selling non-marginable securities, or selling long options held in the account. Funds deposited in an account to satisfy a day-trading buying power call are subject to our 10-business-day hold policy with the exception of wires, which must remain in the account for two business days.

    Regulation T Restricted accounts - Pattern day trader accounts that are under a Regulation T restriction will have their day trading buying power limited in the following manner:

    • If the account meets the $25,000 minimum equity requirement, they will receive the lesser of SMA times two or SRO excess times four. Closing day trade transactions will still replenish day trading buying power.
    • Pattern day-trader accounts that fall below the $25,000 minimum equity requirement will not be allowed to day trade. If a day trade is executed when the equity is below $25,000, your account will be restricted to closing transactions only for 90 days, or until the equity is brought up to $25,000.

Additional restrictions may apply. For more information, please refer to the Margin Handbook. If you have specific questions about how these rules may affect you, please e-mail us at: clientservices@tdameritrade.com. You may also view the rules on the NASD Regulation Web site.