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NYSE Day Trading Rules

by Carmelo J. Montalbano

Overview

NYSE Day Trading Rules

Each stock exchange, including the New York Stock Exchange, has responsibility for setting dates and times of trading, rules and regulations for buying and selling stocks, and rules for listing on the exchange. As day trading has become more popular, the exchange has had to establish rules to account for intraday risk.
The Pattern Day Trader

Any trader exhibiting a regular pattern of day trading, or trading during the day but not holding overnight positions, is considered a pattern day trader under the rules of the New York Stock Exchange. Pattern day traders fall under the jurisdiction of the SEC and FINRA rules (see Resources) that the NYSE abides by and which subjects them to different rules of other traders and investors.

NYSE Financial Requirements

A pattern day trader must have a minimum of $25,000 in his account at all times. If this amount is not maintained a margin call is issued and must be answered within five business days. Margin accounts must be met by additional cash or securities equal to the $25,000 minimum. Traders cannot pledge the value of other accounts (called cross-insuring) to existing day trading accounts. The deposited funds must remain in the account for at least two additional trading days.
Benefits of Day Trading

In return for the increased capital requirements and maintenance requirements, margin is increased substantially. Pattern day traders must open a margin account in addition to the regular account and deposit all securities there. In return traders may margin the account value by 400 percent. For example, a deposit of cash and securities in the margin account of $30,000 will allow the trader to own intraday positions of up to $120,000.
Computing the NYSE Pattern Day Trader Amount

The amount of a day trader's margin account is determined by one of two rules. Either the trader's account value must be 25 percent or less of the gross amount of securities owned based on the cost of the stock and securities, or the value of the highest open position of the day. If the latter calculation is the appropriate rule then the NYSE requires that time and tick (the exact calculation of price and when it occurred) be used to compute the highest open position by the brokerage firm. Time and tick data provided by the customer is not acceptable according to NYSE rules.
Rationale of the NYSE Rules on Day Traders

Day traders tend to have narrowly focused portfolios consisting of just a few stocks. The stocks chosen are momentum or "hot" stocks that have exhibited high intraday volatility. Momentum stocks are the fastest-rising stocks and are also held by other day traders. Momentum stocks may not have a good institutional or broad investor ownership. Thus the positions held by day traders are subject to possibly rapid selling on any bad news leaving the NYSE broker firm with margin calls or even losses.