Shares of retail trading platforms Robinhood and Webull surged on Wednesday after the U.S. Securities and Exchange Commission paved the way for a new regulatory framework on day-trading limit for smaller investors.
Wall Street's top regulator late on Tuesday approved a proposal by the Financial Industry Regulatory Authority (FINRA) to remove restrictions that limited accounts under $25,000 to three trades within five business days.
The move will lower barriers for smaller investors and allow them to place unlimited day trades within the framework of the new margin requirements.
"The shift in intraday margin rules represents a meaningful evolution in how active traders can participate in the markets," said Anthony Denier, group president and U.S. CEO at Webull.
Retail traders have emerged as a notable force in recent years as the emergence of commission-free trading and user-friendly apps made stock investing accessible to a new generation of investors.
As part of the revamp, existing day-trading margin provisions will be replaced with new intraday margin requirements.
Once the new framework is implemented, smaller investors will be able to trade throughout the day without having to maintain a $25,000 minimum balance.
The new margin standards will require customers to have enough equity in their margin account to cover the market exposure they have at that moment.
Proponents of the rule change had supported the elimination of the $25,000 minimum balance requirement, arguing it favored wealthier investors and created an arbitrary barrier for smaller investors.
Wall Street analysts said the move is a major boost for retail brokerages and should unlock additional volume going forward.
"Long story short, more day trading equates to more orders per user per day which is a direct benefit to revenue generation," Northland analyst Mike Grondahl said.
"This new ruling should also boost engagement and retention as day traders typically log in more, trade more frequently, and are stickier than standard users."
The new system will go live after the FINRA issues the final publication of the framework.
