Jake P. Noch Family Office, LLC. Comment On Regulatory Notice 24-13
Jake P. Noch Family Office, LLC.
Re: Request for Comment on Day Trading Rules (Regulatory Notice 24-13)
To Whom It May Concern:
Jake P. Noch Family Office, LLC. (“JPN Family Office” or “we”) appreciates the opportunity to comment on FINRA’s review of the rules governing day trading and pattern day trading (the “Rules”). We commend FINRA for periodically reassessing the Rules in light of evolving market conditions, technological advances, and shifts in investor behavior.
We write to express our support for two key principles:
Elimination of Strict Pattern Day Trading (PDT) Rules in their current form.
Adoption of Risk-Based Portfolio Margin Requirements at the $25,000 Threshold to replace the current PDT minimum equity requirement, thus broadening investors’ ability to employ hedging and other risk mitigation strategies.
Below, we provide our comments regarding the questions raised in Regulatory Notice 24-13.
1. Evolving Purpose and Need for Day Trading Requirements
Have the original purposes of and need for the day trading requirements been affected by changes to technology, the types of securities available, firms’ capabilities for monitoring intra-day risk, the business environment, or customer behavior?
Yes. The proliferation of advanced trading platforms, real-time monitoring tools, and sophisticated analytics has fundamentally changed the retail trading landscape. Many broker-dealers now have the technological capacity to measure customers’ intra-day risk exposures more effectively and dynamically than when these Rules were originally implemented. Customers also have significantly more educational resources and real-time access to market data, which can help them identify and manage risks with greater sophistication.
What are the relevant risks that should be addressed by these requirements in the current environment, and are there alternative or additional ways to protect customers?
Market volatility and over-leveraging remain central concerns. However, we believe these risks can be addressed with a robust, risk-based margin framework rather than rigid, one-size-fits-all pattern day trading requirements. We propose that a well-structured portfolio margin regime, scaled down to a $25,000 threshold (instead of the current pattern day trading threshold), is both prudent and inclusive. It would allow a broader range of investors to employ hedging strategies and, at the same time, receive real-time margin calls if their positions exceed predefined risk limits.
2. Day-Trading Account Approval and Risk Disclosure Requirements
Usefulness in Addressing Customer Risks
While risk disclosures and account approvals serve the important function of educating potential day traders, they may not effectively mitigate all the risks associated with day trading, particularly for investors who employ more nuanced strategies (e.g., hedging through options). Broker-dealers’ increased analytical capabilities and customers’ use of real-time information could render the historical “one-time” disclosures less effective in continuously shaping investor behavior.
Effectiveness in Protecting Customers
The approval process, as currently structured, is largely perfunctory. In many cases, it merely dissuades customers from day trading if they do not meet arbitrary thresholds. A dynamic, risk-based approach—requiring margin based on real-time risk metrics—would be more responsive to actual trading exposures.
Scope of Rule 2130
Expanding Rule 2130 to all members rather than only those that “promote day-trading strategies” might streamline compliance obligations; however, the current risk-based approach used in portfolio margin accounts could be equally or more protective. Firms with robust risk and margin systems can tailor their oversight to individual clients’ trading profiles, reducing the need for a universal bright-line rule.
Products or Trading Strategies with Similar Risks
Options and certain complex hedging strategies can carry risks similar to day trading—especially when heavily levered—but these risks can be effectively managed with robust, real-time margin calculations. We advocate that FINRA further refine portfolio margin rules rather than expand a static “day trading” concept.
Economic Impacts
The current rules disproportionately burden smaller and mid-sized firms and retail traders, limiting portfolio diversification and hedging. For instance, imposing the full $25,000 requirement before investors can engage in multiple day trades may force some to pursue riskier positions in a single direction rather than hedging with offsetting positions. Lowering the threshold for risk-based portfolio margin accounts would help level the playing field.
Potential Changes
We suggest that FINRA work toward integrating risk-based portfolio margin principles into the approval and risk disclosure regimes, focusing on real-time margin calculations to ensure that customers and firms alike remain protected.
3. Pattern Day Trading Requirements
Usefulness in Addressing Risks to Individual Customers and Firms
The static definition of a “pattern day trader” has become less useful in modern markets. Zero-commission trading, advanced analytics tools, and narrower spreads have lowered barriers to frequent trading but have also changed the risk profile of many trades. A short-term scalp or hedge trade in a highly liquid security may pose less risk than a thinly traded position held overnight.
Firms’ Capabilities for Monitoring and Assessing Intra-Day Risk
Broker-dealers have significantly enhanced their capabilities, often employing robust real-time surveillance and risk controls to manage customer exposures. These systems can replace the blunt instrument of a fixed PDT rule by applying real-time margin requirements proportionate to actual exposures.
Business and Market Environment Changes
We note that many retail and professional investors engage in dynamic, short-term strategies that do not fit neatly under the classical definition of “day trading,” especially when these strategies involve derivatives for hedging. Maintaining a binary “pattern day trader” designation can stigmatize or unduly penalize sophisticated risk management techniques.
Experience with Applying the PDT Requirements
Our experience shows that many retail traders inadvertently breach the three-day-trade threshold, triggering the pattern day trader designation, leading to confusion and disruptions in their trading strategies. This confusion is exacerbated when trades do not involve margin but are still counted toward the PDT threshold.
Trading in Cash Accounts and T+1 Settlement
With the gradual move to shorter settlement cycles, the line between “day trading” and other short-term strategies becomes blurred. Customers can close a position within a single trading session in a cash account without incurring additional risk to the system. We recommend that FINRA ensure consistency in its definitions across account types, focusing on net risk exposure rather than a strict timeline.
Definition of a “Day”
In our view, an effective approach would focus on net risk exposure irrespective of whether trades occur during regular or extended hours. The definition of a “day” for regulatory purposes should not be the key factor determining investor protections. Instead, net risk and real-time margin should govern.
Adaptations to the Current PDT Requirements
Active traders often structure their activity to avoid the PDT rule—e.g., opening accounts at multiple broker-dealers or intentionally limiting closing trades. This behavior can fragment a trader’s positions and is often counterproductive to effective risk management. A more flexible, risk-based regime would encourage consolidated oversight of a trader’s total exposures at one firm.
Economic Impacts of the PDT Requirements
The PDT Rules, by imposing a $25,000 capital threshold, can disadvantage otherwise prudent investors who seek to manage smaller portfolios actively or employ hedging strategies. Meanwhile, large institutions and ultra-high-net-worth investors have no issue with meeting this threshold, creating an uneven playing field.
4. Recommended Changes
Adopt a Risk-Based Portfolio Margin Structure in Lieu of the PDT Rule
Lower the threshold for portfolio margin eligibility to $25,000 in total account equity.
Allow intraday leverage and real-time margin requirements based on net risk exposures.
Foster broader hedging and diversification strategies among retail and mid-tier investors.
Eliminate or Amend the Pattern Day Trading Designation
Instead of labeling an individual as a “pattern day trader” after three day trades in five days, rely on real-time risk-based margin.
Focus on ensuring that customers have appropriate disclosures, brokerage tools, and educational materials to understand the risks.
Modernize Disclosure Requirements
Provide dynamic, ongoing disclosures tied to real-time activity in customer accounts, incorporating risk dashboards or alerts.
Encourage firms to offer scenario analyses that illustrate potential losses under various market conditions rather than relying on a static disclosure.
Harmonize Rules Across Account Types and Settlement Cycles
As T+1 (and potentially T+0 in the future) becomes more prominent, allow consistent rules that do not penalize a trade closed on the same day if it presents minimal overnight risk.
5. Conclusion
We respectfully submit that the existing day trading and pattern day trading requirements, while historically well-intended, no longer fully align with today’s market realities or technological capabilities. A risk-based framework—coupled with robust, real-time margin monitoring—would more effectively manage the risks that the current Rules aim to mitigate. Lowering the threshold for portfolio margin to $25,000 and refining or eliminating the static PDT designation would promote broader participation in prudent hedging strategies, enhance market resiliency, and reduce unintended compliance burdens.
We appreciate FINRA’s willingness to solicit feedback and look forward to continued engagement on this important matter. Should you have any questions or require further information, please feel free to contact the undersigned at your convenience.
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Jake P. Noch Family Office, LLC. Comment On Regulatory Notice 24-13
Re: Request for Comment on Day Trading Rules (Regulatory Notice 24-13)
To Whom It May Concern:
Jake P. Noch Family Office, LLC. (“JPN Family Office” or “we”) appreciates the opportunity to comment on FINRA’s review of the rules governing day trading and pattern day trading (the “Rules”). We commend FINRA for periodically reassessing the Rules in light of evolving market conditions, technological advances, and shifts in investor behavior.
We write to express our support for two key principles:
Below, we provide our comments regarding the questions raised in Regulatory Notice 24-13.
1. Evolving Purpose and Need for Day Trading Requirements
Have the original purposes of and need for the day trading requirements been affected by changes to technology, the types of securities available, firms’ capabilities for monitoring intra-day risk, the business environment, or customer behavior?
Yes. The proliferation of advanced trading platforms, real-time monitoring tools, and sophisticated analytics has fundamentally changed the retail trading landscape. Many broker-dealers now have the technological capacity to measure customers’ intra-day risk exposures more effectively and dynamically than when these Rules were originally implemented. Customers also have significantly more educational resources and real-time access to market data, which can help them identify and manage risks with greater sophistication.
What are the relevant risks that should be addressed by these requirements in the current environment, and are there alternative or additional ways to protect customers?
Market volatility and over-leveraging remain central concerns. However, we believe these risks can be addressed with a robust, risk-based margin framework rather than rigid, one-size-fits-all pattern day trading requirements. We propose that a well-structured portfolio margin regime, scaled down to a $25,000 threshold (instead of the current pattern day trading threshold), is both prudent and inclusive. It would allow a broader range of investors to employ hedging strategies and, at the same time, receive real-time margin calls if their positions exceed predefined risk limits.
2. Day-Trading Account Approval and Risk Disclosure Requirements
Usefulness in Addressing Customer Risks
While risk disclosures and account approvals serve the important function of educating potential day traders, they may not effectively mitigate all the risks associated with day trading, particularly for investors who employ more nuanced strategies (e.g., hedging through options). Broker-dealers’ increased analytical capabilities and customers’ use of real-time information could render the historical “one-time” disclosures less effective in continuously shaping investor behavior.
Effectiveness in Protecting Customers
The approval process, as currently structured, is largely perfunctory. In many cases, it merely dissuades customers from day trading if they do not meet arbitrary thresholds. A dynamic, risk-based approach—requiring margin based on real-time risk metrics—would be more responsive to actual trading exposures.
Scope of Rule 2130
Expanding Rule 2130 to all members rather than only those that “promote day-trading strategies” might streamline compliance obligations; however, the current risk-based approach used in portfolio margin accounts could be equally or more protective. Firms with robust risk and margin systems can tailor their oversight to individual clients’ trading profiles, reducing the need for a universal bright-line rule.
Products or Trading Strategies with Similar Risks
Options and certain complex hedging strategies can carry risks similar to day trading—especially when heavily levered—but these risks can be effectively managed with robust, real-time margin calculations. We advocate that FINRA further refine portfolio margin rules rather than expand a static “day trading” concept.
Economic Impacts
The current rules disproportionately burden smaller and mid-sized firms and retail traders, limiting portfolio diversification and hedging. For instance, imposing the full $25,000 requirement before investors can engage in multiple day trades may force some to pursue riskier positions in a single direction rather than hedging with offsetting positions. Lowering the threshold for risk-based portfolio margin accounts would help level the playing field.
Potential Changes
We suggest that FINRA work toward integrating risk-based portfolio margin principles into the approval and risk disclosure regimes, focusing on real-time margin calculations to ensure that customers and firms alike remain protected.
3. Pattern Day Trading Requirements
Usefulness in Addressing Risks to Individual Customers and Firms
The static definition of a “pattern day trader” has become less useful in modern markets. Zero-commission trading, advanced analytics tools, and narrower spreads have lowered barriers to frequent trading but have also changed the risk profile of many trades. A short-term scalp or hedge trade in a highly liquid security may pose less risk than a thinly traded position held overnight.
Firms’ Capabilities for Monitoring and Assessing Intra-Day Risk
Broker-dealers have significantly enhanced their capabilities, often employing robust real-time surveillance and risk controls to manage customer exposures. These systems can replace the blunt instrument of a fixed PDT rule by applying real-time margin requirements proportionate to actual exposures.
Business and Market Environment Changes
We note that many retail and professional investors engage in dynamic, short-term strategies that do not fit neatly under the classical definition of “day trading,” especially when these strategies involve derivatives for hedging. Maintaining a binary “pattern day trader” designation can stigmatize or unduly penalize sophisticated risk management techniques.
Experience with Applying the PDT Requirements
Our experience shows that many retail traders inadvertently breach the three-day-trade threshold, triggering the pattern day trader designation, leading to confusion and disruptions in their trading strategies. This confusion is exacerbated when trades do not involve margin but are still counted toward the PDT threshold.
Trading in Cash Accounts and T+1 Settlement
With the gradual move to shorter settlement cycles, the line between “day trading” and other short-term strategies becomes blurred. Customers can close a position within a single trading session in a cash account without incurring additional risk to the system. We recommend that FINRA ensure consistency in its definitions across account types, focusing on net risk exposure rather than a strict timeline.
Definition of a “Day”
In our view, an effective approach would focus on net risk exposure irrespective of whether trades occur during regular or extended hours. The definition of a “day” for regulatory purposes should not be the key factor determining investor protections. Instead, net risk and real-time margin should govern.
Adaptations to the Current PDT Requirements
Active traders often structure their activity to avoid the PDT rule—e.g., opening accounts at multiple broker-dealers or intentionally limiting closing trades. This behavior can fragment a trader’s positions and is often counterproductive to effective risk management. A more flexible, risk-based regime would encourage consolidated oversight of a trader’s total exposures at one firm.
Economic Impacts of the PDT Requirements
The PDT Rules, by imposing a $25,000 capital threshold, can disadvantage otherwise prudent investors who seek to manage smaller portfolios actively or employ hedging strategies. Meanwhile, large institutions and ultra-high-net-worth investors have no issue with meeting this threshold, creating an uneven playing field.
4. Recommended Changes
5. Conclusion
We respectfully submit that the existing day trading and pattern day trading requirements, while historically well-intended, no longer fully align with today’s market realities or technological capabilities. A risk-based framework—coupled with robust, real-time margin monitoring—would more effectively manage the risks that the current Rules aim to mitigate. Lowering the threshold for portfolio margin to $25,000 and refining or eliminating the static PDT designation would promote broader participation in prudent hedging strategies, enhance market resiliency, and reduce unintended compliance burdens.
We appreciate FINRA’s willingness to solicit feedback and look forward to continued engagement on this important matter. Should you have any questions or require further information, please feel free to contact the undersigned at your convenience.
Thank you for your consideration.
Sincerely,
Jake P. Noch
Managing Director
Jake P. Noch Family Office, LLC.