In a move that could fundamentally reshape access to the markets for active retail traders, the Financial Industry Regulatory Authority (FINRA) has advanced a proposal to scrap the controversial $25,000 minimum equity rule for pattern day traders. The agency’s board has approved a plan to replace the fixed capital requirement with a system governed by real-time margin standards, potentially unlocking the doors for a new wave of investors.
The existing pattern day trader (PDT) rule, established in 2001, has long been a point of contention. It mandates that traders who execute four or more-day trades within a five-business-day period must maintain a minimum of $25,000 in their margin account. Failure to meet this requirement results in a trading restriction. Critics, including major brokerage firms, argue this rule is an outdated barrier that disproportionately impacts newer, often younger, investors. The proposed shift would tie a trader’s buying power to existing maintenance margin calculations applied to their intraday exposure, a model that proponents say better reflects modern risk management capabilities.
This regulatory push follows significant pressure from the financial industry. Heavyweights like Fidelity Investments, Charles Schwab, and Robinhood have publicly argued that the current framework is obsolete. In comments submitted to FINRA, these firms highlighted that advanced intraday monitoring technology and the prevalence of commission-free trading have rendered the blunt $25,000 instrument unnecessary. Robinhood provided data showing that customers who trigger the PDT rule are exponentially more likely to become inactive, suggesting the rule may be stifling participation rather than promoting responsible trading.
Broker-dealers also reported that the current system leads to confusion and unintended consequences among retail investors. Some traders make poor investment decisions simply to avoid the PDT designation, while others allow accounts to be closed to switch brokers where they haven’t yet been flagged. The consensus among industry leaders is that a more nuanced, margin-based approach would offer better protection while fostering greater market accessibility. If finalized, this proposal would represent the most significant modernization of day trading regulations in over two decades.
