9.2 Cash Accounts & Regulation T
Cash accounts require full payment. Regulation T sets customer payment deadlines, while freeriding rules prevent trading on unsettled funds.
Key FINRA Exam Takeaways
- Cash account: Customer must pay 100% of the purchase price; no borrowing allowed.
- Settlement Date: T+1 business day under SEC Rule 15c6-1 for corporate equities and bonds.
- Payment Deadline: Regulation T requires payment within Settlement + 2 business days (T+2 under current rules).
- Failure to Pay: Broker-dealer liquidates unpaid securities on the morning of S+2 and freezes the account for 90 days.
- Freeriding: Buying securities and then selling them before paying for the purchase; results in a 90-day cash-upfront freeze.
Payment Timing vs. Settlement
Under T+1 settlement, regular-way trade settlement is 1 business day after trade date. Under Federal Reserve Regulation T, the client has 2 business days after settlement (T+2) to deliver payment. If payment is late, the firm can request an extension from FINRA or liquidate the position.
Knowledge Checkpoint • Section 9.2
An investor purchases $10,000 of common stock in a cash account on Tuesday, June 3. Under standard Regulation T rules, by when must payment be received before the broker-dealer is required to cancel or liquidate the transaction?