Amid some complaints from investors and brokerage firms alike, the U.S. Financial Industry Regulatory Authority Inc. (FINRA) is reviewing its regulatory framework for day trading.
The U.S. industry self-regulatory organization launched a review of rules that were designed to limit losses to both investors and brokerage firms and to ensure that the risk is adequately disclosed to clients.
To that end, the rules set out “special requirements that apply to day trading in margin accounts, account approval requirements for customers that intend to use day-trading strategies, and risk disclosures that members that promote day-trading strategies must provide to customers.”
However, the SRO is now undertaking a review of these requirements, given the evolution in markets since the rules were adopted — including the growth of retail investor trading, the development of products designed for short-term trading, and major technological shifts which have facilitated zero commission trading, shorter settlement cycles, and trading in fractional shares.
The investor population has evolved too, FINRA said.
“For example, research has shown that younger investors are joining the market in large numbers, are more likely to use a mobile app for placing trades, and are more comfortable with risky investments,” it said. These investors are also more reliant on social media as a source of investment information, rather than industry professionals.
In this environment, FINRA said some traders appear to be unaware of the specific constraints on day-trading accounts, and there have been complaints from investors about the curbs on margin accounts in particular.
Additionally, FINRA noted that some firms have recommended that the SRO considering modernizing these rules to reflect the evolution of markets and improvements in risk monitoring technology, since the rules were adopted.
“Some market participants have suggested in particular that the pattern day trading requirements need to be modernized to better reflect the current market environment,” it said.
The deadline for feedback is Jan. 28, 2025.