Quick Answer
The margin rule no longer counts day trades or names pattern day traders. When a day's transaction reduces a margin account's intraday margin level, the firm determines an intraday margin deficit and requires it satisfied as promptly as possible. A practice of missing deficits, plus one unsatisfied past the fifth business day, brings a 90-day restriction.
Day trading is no longer measured by counting trades. It is measured by what a day's transactions do to the account's margin cushion.
What Does the Firm Measure?
- Intraday margin level (IML): For a margin account at a point in time, the cash the customer could withdraw and still meet the maintenance margin the rest of the margin rule requires. When the account is short of that margin, the IML is the additional cash the customer would have to deposit, written as a negative number.
- IML-reducing transaction: Any activity in the account that lowers the IML. This includes a purchase or sale and any withdrawal of cash or securities.
- Intraday margin deficit: For a day that had any IML-reducing transaction, an amount the firm determines that is at least the absolute value of the largest negative IML reached on any IML-reducing transaction that day.
| Term | What it captures |
|---|---|
| Intraday margin level | The account's margin cushion at a moment, positive as withdrawable cash or negative as cash owed |
| IML-reducing transaction | The trigger; a trade or a withdrawal that lowers the cushion |
| Intraday margin deficit | The day's worst negative reading, in absolute value |
Exam Tip: Gotchas
- The measure is the worst point of the day, not the closing balance. An account can end the day fully margined and still have an intraday margin deficit, because the deficit is taken from the largest negative intraday margin level reached during the day.
- A withdrawal counts. An IML-reducing transaction is not only a trade. Taking cash or securities out of the account reduces the intraday margin level in the same way.
Which Accounts Does the Firm Check, and When?
- The firm determines the intraday margin deficit for each customer margin account it maintains, for each day in which there is an IML-reducing transaction.
Exam Tip: Gotchas
- No transaction, no determination. The obligation attaches only to a day in which an IML-reducing transaction occurred.
How Is a Deficit Satisfied?
- The firm must require the deficit to be satisfied as promptly as possible.
- The customer satisfies it with net deposits, or any other increase in the account's intraday margin level, equal to the deficit.
IML-reducing transaction → negative intraday margin level → intraday margin deficit → satisfy as promptly as possible
What Happens to a Customer Who Does Not Satisfy Them?
A 90-day restriction applies when both conditions are met:
- The customer makes a practice of failing to satisfy intraday margin deficits as promptly as possible; and
- The customer fails to satisfy a deficit by the close of business on the fifth business day after it occurs.
The firm must then prevent the customer from creating or increasing a short position or debit balance, other than by closing a short position, for 90 calendar days after that fifth business day, or until the deficit is satisfied.
Exam Tip: Gotchas
- One missed deficit is not enough. The restriction needs both a practice of failing and a specific deficit missed past the fifth business day.
- The restriction is on new exposure, not on all trading. It prevents the customer from creating or increasing a short position or debit balance. Closing a short position is still permitted.
What Is Buying Power?
- Buying power: The value of marginable securities a customer may purchase using the excess equity in the margin account. Under the federal initial-margin requirement of 50%, excess equity supports roughly twice its amount in new marginable purchases.
- The margin rule sets no separate buying-power multiple for day trading.
Exam Tip: Gotchas
The pattern day trader regime no longer exists. The margin rule dropped the pattern-day-trader designation, the day-trade counts, the $25,000 minimum equity, day-trading buying power and the day-trading margin call. The intraday margin standard replaced all of them. Older study material still describes the old regime. The rules requiring day-trading account approval and delivery of the day-trading risk disclosure statement are separate and still apply.
What Should You Check on Exam Day?
- Identify the trigger: an IML-reducing transaction, which includes a trade or a withdrawal of cash or securities.
- Take the deficit from the largest negative intraday margin level reached during the day, in absolute value.
- Exclude a good faith account and a portfolio margin account from the determination.
- Require satisfaction as promptly as possible, by net deposits or another increase in the intraday margin level.
- Apply the 90-day restriction only when a practice of failing exists and a deficit goes unsatisfied past the fifth business day.