The SEC approved FINRA’s plan to remove the $25,000 minimum balance rule for pattern day traders and replace it with a real-time intraday margin system
The U.S. Securities and Exchange Commission approved FINRA’s plan on April 14 to remove the $25,000 minimum equity requirement tied to day trading in margin accounts. The change also ends the long-standing “pattern day trader” label, which had limited customers with smaller accounts from making more than four day trades within five business days. In its place, regulators approved a new intraday margin framework based on a trader’s real-time exposure.
SEC approves end of $25,000 day trading rule
The old pattern day trader rule began in 2001 after the dot-com crash. It required traders to keep at least $25,000 in a margin account if they wanted to make more than three day trades in a five-day period. If the account balance fell below that level, the broker could restrict further day trading.
That rule applied only to certain active traders, mainly those with smaller accounts. For years, retail investors and online brokerages argued that the threshold kept many people out of short-term trading, even when they were willing to meet normal margin standards. The SEC’s approval now removes both the minimum balance rule and the formal pattern day trader definition.
In its order, SEC Assistant Secretary Sherry Haywood wrote that public feedback “overwhelmingly supported” the plan, including the “elimination of the $25,000 minimum equity requirements and definition of pattern day trader.” The approval marks one of the biggest changes to U.S. day trading rules in more than two decades.
Intraday Margin Framework Replaces Trade-Based Limit
The new approach replaces a trade-counting system with a risk-based model. Under the revised framework, traders must maintain enough equity to cover the exposure they create during the trading day. This standard applies to all margin account customers at FINRA member broker-dealers, not only those who day trade frequently.
FINRA Rule 4210 will continue to require customers to meet existing initial and maintenance margin standards. However, the new structure adds a method for tracking intraday exposure more closely. It also covers zero-days-to-expiration options, known as 0DTE options, which were not directly addressed in the earlier framework.
Broker-dealers can choose between two compliance methods. They may use real-time monitoring systems that stop trades before they exceed margin limits. They may also use a single end-of-day calculation to review intraday exposure. This gives firms flexibility while moving the market toward a broader margin-based system.
FINRA said, “FINRA believes that the proposed rule change will benefit customers and members alike by reducing risks of intraday trading exposures more broadly and giving customers more freedom to participate in the markets, while reducing compliance costs for members.”
Compliance Timeline Begins After Regulatory Notice
The new rules will take effect 45 days after FINRA publishes its Regulatory Notice. Firms that need more time to update systems will receive an 18-month phase-in period from the date of that notice. This gives broker-dealers time to adjust technology, compliance checks, and internal controls.
The framework also sets out penalties for accounts that fail to meet intraday margin calls. If an account repeatedly does not cover intraday margin deficits within five business days, it will face a 90-day freeze on creating or increasing short positions or debit balances. At the same time, small deficits are exempt if they stay below the lesser of 5% of account equity or $1,000. Extraordinary circumstances may also qualify for an exemption.
Retail brokers welcomed the SEC decision. Steve Quirk, chief brokerage officer at Robinhood, said the change was a “significant step forward in empowering retail investors.” Anthony Denier, group president of Webull, also said changes to the old pattern day trading rules were “long overdue.”
