FINRA pushing back the start date for new treatment of non-margin eligible equity securities, to accommodate systems-related concerns.  The changes will go into effect on 10/3/11, rather than on 7/1/11 - as originally announced in RegNote 11-16.  Additionally, FINRA is revising a provision regarding the day trading of non-margin eligible equity securities.

Background & Discussion.   In April's RegNote 11-16, FINRA clarified margin requirements for both long and short non-margin eligible equity securities in Regulation T and portfolio margin accounts.  The Notice also stated that FINRA would permit firms to extend maintenance loan value on non-margin eligible equity securities when used to collateralize non-purpose loans in good faith accounts.

With respect to day trading non-margin eligible equity securities, the Notice also clarified that customers may day trade a non-margin eligible equity security, provided the special maintenance margin requirement of 100% did not exceed 1 times the regulatory maintenance excess - i.e., equity in the account after the maintenance margin requirement is met. 

The Notice further provided that a firm must issue a day-trade call if a customer day traded in excess of this limit;  if the resulting day-trade call was not satisfied within 5 business days, a firm would be required to cancel any day-trade transactions of such securities.

FINRA recognizes that the requirement to cancel the day-trade transactions may cause operational issues - which is why FINRA is revising the cancellation requirement to require that:

For customers who fail to meet a day-trade call that's issued as a result of day trading a non-margin eligible equity security - either as one day trade or as part of several day trades - firms will be required to restrict all day-trading activity for such customers to one times the regulatory maintenance excess for a period of 90 calendar days. 

Firms must have adequate procedures in place to ensure that customers do not continue to day trade without sufficient funds in their account in violation of such restriction.  Firms should also be aware of customers who exhibit day-trading patterns that could potentially be viewed as circumventing the rules governing free riding in the cash account.

FINRA Staff Contacts.   Direct questions to:   Rudolph Verra: MD, Risk Oversight and Operational Regulation - (646) 315-8811;   Glen Garofalo: Director, Credit Regulation - (646) 315-8464;  Steve Yannolo: Project Manager, Credit Regulation - (646) 315-8621.

For further details, go to:   [FINRA RegNote 11-30, June 2011]