Good Faith Violation

What is a GFV?

A GFV occurs when a cash account buys a stock with unsettled funds and liquidates the position before the settlement date of the sale that generated the proceeds.

How it happens

A GFV occurs when a cash account liquidates stocks that were bought on unsettled proceeds which have yet to settle.

Here's an example. On Monday Nick sells 100 settled shares of ABC, which generates proceeds of $100. This trade will settle on T+1, which is Tuesday. He then uses the funds to purchase shares of XYZ on the same day. On the same day, Nick sells the shares of XYZ. Because the shares of XYZ were bought and then sold using unsettled funds from the ABC sale, a GFV will be issued, and funds will not be made available in buying power. To avoid a GFV, the cash account would need to hold the XYZ shares until Tuesday (when the sale of original ABC trade settles), before selling. In the example above buying power will be replenished the following day once the funds settle.

Receiving a GFV

After 3 violations in 12 months, your account will be restricted to using settled cash only. This means that if you sell a security, you should wait til the proceeds of the sale settle before using them on a new purchase. After 4 violations, your account is restricted for 90 days. After 5 violations, your account will be closed.

How to resolve a GFV?

No deposit or liquidation can lift a GFV. Each GFV will automatically expire at the beginning of the 13 month since its trade day.