Good Faith Violations and 90-Day Restriction Scenarios

Discover 90-day restriction and good faith violation examples below. The good faith violation scenario covers how the issue might occur in a cash-only account. The 90-day restriction scenario covers what happens when an investor day trades with unsettled funds and when an investor sells securities not fully paid for through a cash account.

Good Faith Violation Scenario

Scenario: An investor day trades using unsettled funds.

Amy starts on Monday with 100 settled shares of XYZ stock, and sells them for $2,000. The proceeds from the sale will settle on Tuesday (T+1), but Amy decides to go ahead and invest the unsettled proceeds in UVW stock, which she buys for $1,000. On the same day, Amy sees the price of UVW stock goes up and she immediately sell the shares for $1,500.

In this case, Amy created a Good Faith violation by selling her UVW stock prior to the settlement of the XYZ proceeds used to buy it. Learn more about Good Faith Violations.

90-Day Restriction Scenarios

Scenario: When an investor sells securities that were not fully paid for by the settlement date.

Jake has $1,000 in cash in his account and he decided to place a market buy order on ABC stock on Monday. The market price inadvertently went up, and the order was executed at a higher price. Jake ended up buying $1,300 worth of ABC stock that was not fully paid for.

Since the trade was made through a cash account where no margin trading is allowed, if Jake sells this position before fully paying for the security, his account will face a 90-Day Restriction.