Comment on FINRA and SEC's Removal of the Pattern Day Trader Designation
Since 2001, traders with small accounts have had to contend with the “pattern day trader” designation, a strange restriction that activated when a trader made four or more “day trades” (roughly, open and close on the same trading day) in a five-business-day period, requiring a $25,000 minimum equity balance at all times. Needless to say, for people prudently trading with only money they’re okay with losing, this can be a serious burden (it’s been inflated away over the years, but it’s still around half the median annual income).
This restriction is now going away, with FINRA and SEC recognizing the harm caused by traders warping their risk tolerance around avoiding the pattern day trader designation and its attendant restrictions; it’s being replaced by a sensible standard that’s pretty much “margin requirements must be calculated intraday”, something brokers already do anyway as part of sensible risk management with access to powerful computers cheaper than it was in 2001.
Furthermore, it isn’t even that delayed—a proposed delay of 12 months (!) was cut down to 45 days. This is a delay on the new rules going into effect; laggards still get 18 months leeway to implement them, though of course the market standard is already real-time intraday calculation and the burden for typical retail brokerages is just “stop enforcing the pattern day trader designation”.
But someone should at least note that, if harm reduction is the ground for the rule change, a 45 day delay is still 45 additional days of harm. So I made that comment, and I also noted that the real demand from small retail investors isn’t for margin per se (the ability to borrow for additional leverage) but simply the instant use of funds available in a margin account that doesn’t have to wait for a settlement delay.
My comment letter is available from the SEC’s website here, and also reproduced below.
Raymond E. Pasco
April 17, 2026
Vanessa A. Countryman
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: File No. SR-FINRA-2025-017 — Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend FINRA Rule 4210 (Margin Requirements) to Replace the Day Trading Margin Provisions with Intraday Margin Standards
Dear Secretary Countryman:
I applaud the Commission’s decision to sunset the “pattern day trader” rules in favor of intraday margin standards. I write to make the following comments: that while a 45-day delay on effectiveness is superior to a 12-month delay, the amended rules should instead go into effect immediately upon publication in the Federal Register; and that the focus on margin requirements risks downplaying the fact that the demand from small retail investors is not for margin per se, but for fast settlement.
1. The Proposed Rule Change Should Take Immediate Effect
The proposed rule change is adopted in part on modernization grounds, but in perhaps greater part on harm reduction grounds. The acknowledged harms to small retail investors and the broker-dealers they have accounts with of the “pattern day trader” designation include the introduction of additional risk due to managing positions around the possibility of this designation.
Because harm reduction is an important ground, the rules should go into effect as soon as is practicable. A 45-day period after publication where the current rules remain in force is, while superior to a 12-month period, still 45 days of continuing harm to investors as they warp their trading strategies around the “pattern day trader” designation.
The intraday margin rules replacing those provisions merely codify what is already standard retail brokerage risk-management practice. For market-leading retail brokers, the burden of updating to the new rules is simply refraining from enforcing the “pattern day trader” designation against customer accounts, which carries a minimal implementation burden.
As seen in the comments to the original proposal, brokers and customers alike welcome this change, and brokers have been preparing for it. The 18 month period provided as a maximum is sufficient for slower brokers to adapt without additionally imposing a minimum. Furthermore, the practice of batching margin requirement calculations each day, something all brokers offering margin accounts already at least do, is allowed under the rule change, even if real-time is already the standard customers expect.
This is not an unexpected or onerous rule change, and the harm reduction of accelerated effectiveness outweighs the cost of adoption for customers and brokers alike.
2. Rapid Settlement, Rather Than Margin, Is Important To Small Retail Investors
Small retail investors prudently trade with sums of money they are comfortable losing. Because this sum is often below $25,000, the elimination of the “pattern day trader” designation and its attendant restrictions offers small retail accounts the ability to reduce their exposure to their desired level.
However, the bulk of small retail traders trading in margin accounts did not select margin accounts for the margin credit facility per se, but instead for the ability to deploy capital immediately. When available capital is small, settlement delays mean days spent with no ability to enter positions, and margin accounts have been attractive for this reason even with the risks introduced by the “pattern day trader” designation.
It may be prudent for rulemaking attention to be given to the possibility of “cash-like” margin accounts bearing absolutely minimal restrictions, commensurate with their low level of risk (limited to the risk of failure of executed trades to settle, which is extremely low in modern markets, and quite insurable; T+1 has already shown that market infrastructure can handle more rapid settlement).
I appreciate the opportunity to comment on this matter.
Sincerely,
Raymond E. Pasco
