Q: What are the new Day Trading Rules for FINRA firms?
A: Per new FINRA margin rules, a pattern day trader will need a minimum initial trading capital of $25,000.

Q: What constitutes a day trade under the new Margin Rules?
A: A day trade is the purchase and sale (or sale and purchase) of the same security on the same day in a single account.

8/31/07 Buy 500 ABCD and Sell 500 ABCD


8/31/07 Buy 500 ABCD and Sell 200 ABCD


8/31/07 Sell Short 300 ABCD and Buy 300 ABCD

Note:

The sale of an existing position that was held overnight will be treated as liquidation. The subsequent repurchase of that position, as the establishment of a new position, is not subject to the rules affecting day trades.

Q: What is a pattern day trader?
A: A pattern day trader is a client who day trades 4+ times in 5 business-days within a single margin account. If the day trading activity in a single margin account does not exceed 6% of the client's total trading activity for the 5-day period, the client would not be considered a "pattern day trader."

If a client qualifies as a pattern day trader in a single margin account, that account will be designated as a day trade margin account.

If a client does 4 day trades within 5 business-days and also has a total of 100 transactions during that 5-day period, they would not be deemed a pattern day trader since less than 6% of that customer's total trades would have been day trades. In this instance, only 4% of the customer’s trades would be considered day trades.

Q: What are the minimum equity requirements for day trade margin accounts?
A: An account classified as a “pattern day trader account” requires a minimum liquidating equity of $25,000. Your liquidating equity can be found every morning on the bottom section of your comprehensive report found in the Client Center on our Web site at www.terranovatrading.com.

Liquidating equity may differ from margin equity as liquidating equity includes positions with a market value below $5,
in addition to options positions.

Q: What types of securities may I deposit into my margin account at Terra Nova?
A: Terra Nova will accept marginable equities, mutual funds (must be purchased in cash account and held for 30 days before being moved to margin) or money markets (must be held in cash account and are non-marginable). Please call a Terra Nova Customer Support Representative if you have questions in determining whether your equities are marginable and to assess the extent to which the other securities are marginable.

Q: How do the new margin rule amendments change Day Trading Buying Power (DTBP)?
A: DTBP for accounts deemed as pattern day traders is limited to 4 times the day trader's maintenance excess. This calculation is based on the customer’s account positions as of the close of business on the previous day. Maintenance excess is calculated by subtracting your margin maintenance requirement from your margin equity. The maintenance excess (DT Excess Equity) figure can be found every morning on the bottom section of your comprehensive report found in the Client Center on our Web site.

Q: How do I calculate my Day Trading Buying Power?
A: Provided the account is not currently in a day trading call and the account is coded as a pattern day trader, DTBP is calculated by multiplying your maintenance excess times 4. If in a day trading call and coded as a pattern day trader, the DTBP is calculated by multiplying your maintenance excess times 2 on an aggregate basis. Aggregating trades is defined as taking the total cost of all opening positions in one trading day.

Q: Where can I find my Maintenance Excess?
A: Your Maintenance Excess (DT Excess Equity) figure can be found every morning on the bottom section of your comprehensive report found in the Client Center on our Web site.

In addition, you can also find this figure in your account detail screen within your RealTick® software or the positions section within your Investor™ platform.

If you have any questions regarding locating this figure, please call a Customer Support Representative at 1-866-866-6546.

Q: What if my pattern day trade margin account falls below the $25,000 minimum liquidating equity balance intraday?
A: If the account is coded as a pattern day trade margin account and drops below the $25,000 minimum intraday but has
a liquidating equity above $25,000 by the close of the day, the account will still have four to one day trading buying power the next trading day. If the liquidating equity is below $25,000 by the close of the day, the account will be reduced to 1 x cash available for the next trading day.

Q: As a Pattern Day Trader, if I hold a position overnight and want to day trade that position do I need to be mindful of the sequence of my trades?
A: Yes. If you are holding a position overnight and then initiate a new trade which increases the position in the security held overnight, prior to liquidating the overnight position and subsequently day trade the position, you may incur a day trade call. This call would stem from the order that the trades occurred. Please see the example below:

Overnight Position:
Long 5000 MSFT @ 41

Account Balances:
Long Market Value: $205,000
Debit Balance: $103,750
Equity: $101,250
Minimum Maintenance Requirement: $51,250
Day Trade Excess Equity: $50,000
Day Trade buying power: $200,000

Notice how the sell of 5000 shares at 9:33am resulted in a reduction of buying power. This trade was considered the initiation of a short sale that exceeded the buying power, resulting in a day trade call of $1,250.

If you intend to day trade a position that you are currently holding overnight and might liquidate the overnight position in the same day, it is recommended that you first liquidate that overnight position before day trading.

Q: If I do not meet a day trade call, will my account go on 90-day restriction?
A: Yes, but you will still be able to trade on a 1 x Cash Available basis. Note that if another day trade call were generated in this 90 day period, your account will be shut down.

Q: What if I day trade in an account that is below $25,000 and is coded a pattern day trade account?
A: You may day trade in a pattern day trade account up to one times cash available on an aggregate basis.

Account comes into the day with $20k = cash available

Buy 500 shares of DELL at 20 = $10,000


Sell 500 shares of DELL at 20 = $10,000


Buy 400 shares of AAPL at 25 = $10,000


Sell 400 shares of AAPL at 25 = $10,000

The aggregate sum of the buys is $20,000. No trading call was created. However, if the account were to initiate another purchase or short sale (open an additional position), a day trade call would be created in the amount exceeding the cash available amount.

Q: If my account is below the $25,000 minimum and I am coded as a pattern day trader, what happens if I liquidate an overnight position and repurchase the same security? How does that affect my buying power?
A: Under the new rules, the liquidation of an overnight position will not be counted towards a day trade.

An account with $20,000 equity…

Day 1: Buy $40,000 CSCO


Day 2: Sell $40,000 CSCO


Day 2: Buy $40,000 CSCO

Under this example no day trading call would be created because of same-day substitution. A sell of an overnight position and subsequent buy of the same security on the same day (which does not constitute a day trade) is treated as a same-day substitution and the customer can use the proceeds of the sale towards a new purchase.

Q: What happens if I am a pattern day trader and I exceed my day trading buying power and my account is above $25,000?
A: If the day trading buying power is exceeded in a pattern day trader account above $25,000, the account will be subject to a day trading call.

A pattern day trader with $50,000 in equity, not currently in a call, purchases $250,000 worth of stock. A trading call will be generated in the amount of $12,500. Since not currently in a call, the account would be able to purchase $200,000 worth of stock ($50,000 times 4). However, the account purchased an additional $50,000, generating a call of $12,500 ($50,000 divided by 4).

Q: What is a day trading call?
A: A day trading call is generated when a pattern day trade account exceeds its buying power when affecting an opening position, provided the account is not currently in a call. The amount of the call is equal to 25% of the amount exceeded if coded 4x (see example above), 50% of the amount if coded 2 x, and 100% of the amount if coded 1 x Cash.

Q: How do I meet a day trading call?
A: You can meet a day trading call by depositing full cash in the amount of the call or fully paid for marginable securities. Please be aware that you cannot liquidate positions to cover a day trading call.

Q: How many days do I have to meet a day trading call?
A: Once the call has been generated, the customer has to meet the call by trade date plus 5 business days (T+5).For example: If a call is created on Monday, it must be met by the following Monday (assuming no market holidays).

Q: What happens to the account during those five days that I have to meet the call?
A: In a pattern day trading account, the day following when the call was created, the buying power will be restricted to 2 times maintenance excess. For example: The call is created on Monday; the account will be limited to 2 times maintenance excess on Tuesday.

The account will be margined based on the aggregate sum of all opening trades beginning on the trading day after the day trading buying power is exceeded until the earlier of when the call is met or 5 business days.

Account begins day with $15,000 maintenance excess (Buying Power of $30,000)
and proceeds to do the following trades:

Buy 300 MSFT @ 50 total proceeds $15,000


Sell 300 MSFT @ 51 total proceeds $15,300


Buy 200 AAPL @ 20 total proceeds $4,000


Buy 300 CSCO @ 15 total proceeds $4,500


Sell 200 CSCO @ 14 total proceeds $2,800

The aggregate sum of the above trading activity would be $23,500. The account will be required to have at least $11,750 in maintenance excess to execute the above trades ($23,500 divided by 2).

Q: What happens if I do not meet the day trading call within 5 business days?
A: If a day trading call is not met by T+5, the account is restricted to trading one times cash on hand for 90 days or until the call is met.

Q: Once I deposit funds into my account to meet a day trade or equity call, how long before I may withdraw those funds?
A: Funds deposited to meet a day trade or equity call must remain in the account for an additional 2 business days before they may be withdrawn. Please remember there is a 10-business-day hold on all unverified checks deposited into the account.
For example: Funds wired into the account on Monday are available to be withdrawn on Thursday, assuming no market holidays.

Q: Are Regulation T calls affected by this change?
A: No. Rules for covering and calculating Regulation T calls will remain the same. The Federal Reserve regulates Regulation T calls and the pattern day trade rules are changes imposed by the FINRA.

Q: Has there been a change to cross guarantee accounts?
A: Pattern day traders are not permitted to meet day trading margin requirements through the use of cross guarantees. Each day trading account is required to meet the applicable requirements independently, using only the financial resources available in their account.

Q: What are the house margin requirements?
A: Generally, house maintenance requirements for marginable equities over $5 are 35%. All marginable equities under $5 will carry a 100% House requirement. For house maintenance requirements on other products, please consult customer support.

Q: How do you calculate the margin interest on a margin balance?
A: The formula to determine how margin interest is incurred is as follows:

= (Margin Debit * Margin Rate/360 days) * (Number of days the margin debit is carried).

$10,000 margin debit is charged an 8¾% margin rate for a period of 20 calendar days.
Inserting the numbers in the formula above, the margin interest is calculated as follows:
(10,000 *8.34%/360) * 20 = $48.61 of margin interest charged to the account.

Q: What are the minimum maintenance (exchange) requirements for equity stocks?
A: Generally, most marginable equities over $5 carry a maintenance requirement of 25% for long positions and 30% for short positions; unless your account is concentrated, then the maintenance requirement is 40%. All non-marginable and/or under $5 securities carry a 100% maintenance requirement on Long positions and the greater of $2.50/share or 100% on Short positions.

Q: What is a concentrated account?
A: An account is concentrated when one position consists of more than 50% of account equity.

Q: What equities are marginable?
A: Any equity that trades at $5 per share or above is a marginable equity. Mutual Funds are marginable after 30 days. Inquire through Terra Nova Trading’s Order Desk to find out if a specific stock is marginable.

Q: Can I use margin to increase my buying power when trading in my IRA?
A: No. An IRA is strictly a cash account only. No margin may be used to purchase securities in an IRA account.

Q: What are my options regarding a worthless security?
A: If the security is still trading, you may sell it (or buy to cover if short). If the security is no longer trading, Terra Nova Trading will process a worthless security transaction on your behalf.

Q: Will Terra Nova process restricted stock?
A: Generally, Terra Nova will not accept restricted stock. However, some restricted stock issues may be accepted subject to Operations Management approval. For additional information regarding restricted stock, please send e-mail to support@terranovatrading.com.

Q: What are the margin interest rates at Terra Nova?
A: Below is a table of the margin rates.

Q: What is a house call?
A: A house call is a type of maintenance call that occurs when the equity in the account is below the maintenance requirement, but above 25%. A maintenance call will be generated if your account equity falls below the maintenance requirement of your stocks. (Maintenance requirement is the amount of cash needed to maintain ownership of a particular stock.) Below is a list of the different maintenance requirements. Marginable stocks that are not concentrated (see below) have a 35% maintenance requirement.

All stocks below $5 are not marginable and have a 100% maintenance requirement.

Short positions have a 35% or $5 per share requirement, whichever is greater.

If 50% or more of your total market value is in one stock, it will be considered a “concentrated” position. A 40% maintenance requirement will be necessary on all concentrated positions.

Q: How do I cover a house call?
A: If a call is generated, you must bring your account to 35% equity or the maintenance requirement of your account, whichever is greater.

If your account equity falls below 35%, you will be allotted 4 business days to cover the call. You will be given 3 days if your equity is below 25%. If the value of your account continues to fall to an unsafe level, the call may become due immediately and your account may become subject to liquidation.

All house calls must be covered by 3:00 PM EST on the day the call is due. If your call has not been covered by that time, your account will become subject to liquidation.

To cover a house call, you can either liquidate positions or deposit cash into the account. Please keep in mind, when liquidating positions to meet a maintenance call, the amount of stock that is required to be liquidated is roughly 3 times the value of the call as the securities are on margin and not fully paid for.

By depositing cash into the account, this will fully satisfy the call. However, due to constant market fluctuations, liquidating securities may not meet a call if the account equity is not brought to 35% of market value by the close of the market.

Q: What is an exchange call?
A: An exchange call is a type of maintenance call that occurs when the equity in the account falls below 25%. A maintenance call will be generated if your account equity falls below the maintenance requirement of your stocks. (Maintenance requirement is the amount of cash needed to maintain ownership of a particular stock.) All stocks below $5 are not marginable and have a 100% maintenance requirement.

Q: What is a risk call?
A: A risk call is a type of maintenance call that occurs when the amount of a house call is equal to 40% or more of the liquidating equity in the account. Due to its severity, risk calls must be met within 2 business days of when the call is created. If the value of the account continues to fall to an unsafe level, the call may become due immediately and the account may become subject to liquidation. To cover a maintenance call, you can sell stock or deposit cash into the account.

Q: What is a Regulation T call (Reg T or Fed call)?
A: A Regulation T call is generated when you exceed your overnight buying power.

To calculate your overnight buying power (using margin), take the Overnight Excess Equity from your Comprehensive Report and multiply the number by 2. Then add or subtract any profit or loss for the day. The remaining amount will be your overnight buying power for marginable stocks.

To calculate your overnight buying power for non-marginable stocks (any stock trading below $5), take the Overnight Excess Equity from your Comprehensive Report and add or subtract any profit or loss for the day.

Q: How do I cover a Regulation T call?
A: Regulation T calls must be met by 2:00 PM EST on T+5. Only under special circumstances will extensions be available. Extensions are only available on the date the call is due.

You may deposit funds or liquidate securities in your portfolio to cover a Regulation T call. (The market value of the security must be twice the amount of the call.) However, if the account is below 25% equity and you liquidate positions to meet the call, the liquidation will be recorded against the account. Three recorded liquidations in a 12 month period will restrict the account to available funds for 90 calendar days. If the equity is above 25%, then no restriction is applied.

Q: What is a cash call?
A: A purchase of a security in a cash account must be paid for in full. Any trade that is not paid for will be considered a cash call and must be satisfied two days after settlement date. An additional 2-day extension (T+5) may be granted. Acceptable instruments for payment are wired funds, ACH transfers and personal checks. If the call is not satisfied, the account will be subject to liquidation.

Q: How are Option Day trades calculated?
A: Please click here for Pdf