LIQUIDATIONS

LIQUIDATIONS TO YOUR ACCOUNT

It is important to be aware of the cause of a liquidations and how they can lead to an account restriction.

There are two types of liquidations that can affect your clients account.

  1. 1. A clients account will be marked for a liquidation for purchasing a security and selling a fully paid for security after the original purchase trade date in order pay for that purchase. For Example: Purchasing IBM in the account on Monday and liquidating shares of another security the following day to pay for the purchase.
  2. 2. A clients account will be marked for a liquidation for using funds from a sale that has not yet settled to purchase shares in a cash account and subsequently selling those shares prior to the settlement of the initial sale. For Example: Selling IBM on Monday and purchasing AT&T the same day or next day and then selling AT&T before the IBM sale settled on Thursday

What is a 90-Day Restriction?

The Federal Reserve regulates the extension of credit to clients by broker-dealers under Regulation T. Regulation T requires an account be restricted for 90 days as a result of three or more of the above liquidations or when an account purchases and sells a security (also called free riding) without receiving payment to cover the purchase by settlement date.

An account subject to a 90-day restriction must have negotiable securities in the account prior to the sale of the security and settled funds in the account. prior to a purchase. A violation of the restriction will result in the buy or sell being cancelled and any resulting loss be charged to the rep.

Use of Sale Proceeds:

Clients subject to a 90 restriction may use the sale proceeds from a fully paid for security to pay for the purchase of another security only after the sale has settled.

If a purchase takes place prior to the settlement of the sale proceeds, the purchase must be cancelled from the client’s account. Under the interpretation of Regulation T, the purchase must be cancelled because the proceeds of the sale would not be available to the customer until settlement date. Regulation T requires funds a purchase be satisfied on a trade date basis (not settlement date).

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INSURANCE Quick Links

Highland Capital Brokerage

 

INSURANCE Quick Links

Producer's Choice Network

 

INSURANCE Quick Links

TruChoice Financial Group
(The Annuity Store)

 

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