Day-Trading Accounts: Approval and Risk Disclosure
Now that you know the general requirements for opening accounts, this section covers the additional rules that apply specifically to firms promoting day-trading strategies. Two FINRA rules govern this area: Rule 2130 (approval) and Rule 2270 (risk disclosure).
FINRA Rule 2130 - Approval Procedures
Rule 2130 applies to members that promote a day-trading strategy, directly or indirectly.
What Counts as "Promoting"?
- Advertising
- Website content
- Trading seminars
- Direct outreach to customers
Pre-Account Requirements
Before opening a day-trading account for a non-institutional customer, the member must do one of two things:
| Option | What the Firm Must Do |
|---|---|
| Option A: Approve the account | Determine that day trading is appropriate for the customer, and prepare a written record of the basis for approval |
| Option B: Obtain a written agreement | Get the customer's written statement that they do not intend to use the account for day trading |
Appropriateness Determination (Option A)
The firm must exercise reasonable diligence to ascertain:
- Investment and trading experience and knowledge
- Estimated annual income from all sources
- Estimated net worth (excluding family residence)
- Estimated liquid net worth
Exam Tip: Gotchas
- Rule 2130 only applies to firms that promote day trading. A firm that simply allows day trading without actively promoting it is not subject to these approval procedures. But if the firm promotes day trading in any way (even on its website), Rule 2130 kicks in.
- Net worth for the appropriateness determination excludes the family residence. The rule specifically says "exclusive of family residence."
FINRA Rule 2270 - Day-Trading Risk Disclosure Statement
The risk disclosure must be furnished to each non-institutional customer individually (paper or electronic) before the account is opened. It must also be posted on the member's website in a clear and conspicuous manner.
Required Disclosures
The disclosure statement must inform the customer that:
- Day trading is generally not appropriate for someone with limited resources, limited experience, and low risk tolerance
- The customer should be prepared to lose all funds used for day trading
- An investment of less than $50,000 will significantly impair a day trader's ability to profit
- Day trading requires in-depth knowledge of securities markets, techniques, and strategies
- The customer will be competing with professional, licensed traders
Relationship Between Rules 2130 and 2270
- Rule 2270's risk disclosure must be delivered before the account is opened (when the firm promotes day trading)
- Rule 2130's approval or written agreement is a separate requirement on top of the disclosure
- Both rules target firms that promote day trading to non-institutional customers
Exam Tip: Gotchas
- The $50,000 figure in the risk disclosure is a warning, not a regulatory minimum. The actual regulatory minimum equity for pattern day traders is $25,000 (under FINRA Rule 4210).
- A firm cannot rely on Option B if it knows the customer intends to day trade. If the firm opens an account based on a written non-intent agreement and later learns the customer is day trading, the firm must approve the account under Option A within 10 business days.
- Rule 2270 disclosure must come before the account opens. The risk disclosure is a prerequisite, not something that can be delivered after the fact.