Robinhood shares jumped 8.2% in premarket trading on Wednesday, building on Tuesday’s 10% gain after the Securities and Exchange Commission approved the elimination of restrictive pattern day trader rules.
The SEC gave approval Tuesday for sweeping changes to restrictions on day-trading activity by retail investors, a move welcomed by retail brokers.
The Financial Industry Regulatory Authority had proposed reworking the pattern day trading rule, which currently prohibits traders from making more than four day-trades in a five-day period if their margin account holds less than $25,000 in assets.
Under the new framework, margin standards will require customers to maintain sufficient equity in their accounts to cover their current risk exposure. These standards will apply to all investors rather than targeting only those with smaller accounts.
Public feedback "overwhelmingly supported" the plan, which includes the "elimination of the $25,000 minimum equity requirements and definition of pattern day trader," SEC Assistant Secretary Sherry Haywood wrote in an order.
The regulatory change is expected to benefit retail brokers like Robinhood by potentially increasing trading activity among smaller investors who were previously restricted by the $25,000 threshold. The pattern day trader rule has been in place for years as a measure to protect inexperienced traders from excessive risk-taking in margin accounts, but it was viewed as outdated and overly restrictive.
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