By Bernard Goyder and Paige Smith
The US Securities and Exchange Commission gave the go-ahead for sweeping changes to a restriction on day-trading activity by small investors on Tuesday in a move cheered by retail brokers.
The Financial Industry Regulatory Authority, Wall Street’s self-regulatory watchdog, had proposed reworking the pattern day trading rule, which bans a trader from making more than four day-trades in a five-day period if their margin account has less than $25,000 in assets.
The new margin standards, which require customers to have enough equity in their account to cover the risks they run at that moment, will apply to all investors rather than just small ones.
Public feedback “overwhelmingly supported” the plan, which includes the “elimination of the $25,000 minimum equity requirements and definition of pattern day trader,” SEC Assistant Secretary Sherry Haywood wrote in an order.
Steve Quirk, chief brokerage officer of Robinhood Markets Inc., said in an email that FINRA’s updates were a “significant step forward in empowering retail investors.”
“By eliminating antiquated barriers, this change better reflects the modern trading landscape and ensures everyone has the freedom to invest and participate in the markets on their own terms,” Quirk said.
Reforms to pattern day trading restrictions are “long overdue,” said Anthony Denier, group president of Webull Corp.
Shares in Robinhood rose 5.6 per cent in premarket trading on Wednesday, while Webull gained 7.2 per cent.
