Borrowing Rules for Day Traders Revised

As expected, the New York Stock Exchange and National Assn. of Securities Dealers said Friday that their boards voted to revamp rules governing day-trader margin loans, tightening several provisions but also doubling the amount of money that traders can borrow to buy stocks intraday.

The proposal would force day traders to keep at least $25,000 in their accounts, up from $2,000 now, to trade using borrowed funds.

The proposal, which must be approved by the Securities and Exchange Commission, would penalize day traders who exceed borrowing limits. And it contains provisions that would probably discourage traders from lending money to one another to meet margin calls, or requests for additional funds to cover losses.

“What we’ve done is look at a type of trading and try to come up with the type of margin requirements that address the [accompanying] risks,” said Elisse Walter, chief operating officer of the NASD’s regulatory unit.

However, the proposal also would allow qualified day traders to borrow up to four times the amount in their accounts for intraday trading. The current limit is two times.

Regulators have worried that some day traders take excessive risks and circumvent current limits on how much they can borrow.