The New York Stock Exchange (NYSE) and the National Association of Securities Dealers, Inc. (FINRA) have filed amendments to NYSE Rule 431 and NASD Rule 2520 with the Securities and Exchange Commission (SEC) which increase margin requirements for active security traders. As as result, effective August 27, 2001, all accounts identified as pattern day traders will be required to maintain a minimum of $25,000.00 in equity at all times. Pattern day traders whose equity falls below the $25,000.00 requirement must deposit the funds necessary to meet the equity minimum before normal trading can resume.

Pattern Day Traders
Under the amendments, "pattern day traders" are defined as those customers who day trade (buy and sell the same position within the same trading day) four or more times in five business days. In addition, if Values Based Investor knows or has a reasonable basis to believe that a client is a pattern day trader, the customer must be designated as a pattern day trader immediately, instead of delaying such determination for five business days.

Summary of Rule 431:

• A pattern day trader is defined as any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period.
• Any accounts engaging in pattern Day Trading activity are subject to a minimum equity requirement of $25,000. Pattern Day Trading accounts with less than $25,000 in equity will not have any buying power until the minimum account equity of $25,000 has been met. The minimum equity must be in the margin type.
• The sale of an existing position from the previous day and subsequent repurchase is not considered a day trade.
• Day trading buying power for equity securities will be 4 times the NYSE excess as of the close of business on the previous day, and the time and tick method of calculating Day Trading is acceptable.
• If an account has an outstanding Day Trading margin call, Day Trading buying power will be reduced to 2 times the NYSE excess, and the time and tick calculation method cannot be used while a Day Trading margin call is outstanding. The aggregate method (using the total of all day trades) will be used.
• If an account fails to meet a Day Trading margin call by depositing additional funds within 5 days, Day Trading buying power will be reduced to 1 times NYSE excess for a period of 90 days, or until the call is met.
• Pattern day traders will be prohibited from utilizing cross guarantees to meet Day Trading margin calls or to meet minimum equity requirements.
• Deposits of funds to meet minimum equity requirements or to meet Day Trading margin calls must remain in the customer's account and cannot be withdrawn for a minimum of two business days.
• The time and tick method will not be used for day trades executed away from Penson Financial Services.