Account violations

Cash account
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Cash account trade violations

Cash accounts, unlike margin accounts, require transactions to be paid for with available funds by the time the trade "settles Select to open or close help pop-up
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What is settled cash?

Settlement is when a transaction is finalized and the cash or securities are formally in your account. Most trades settle two days after they are placed. This is sometimes called "T+2," or trade date plus two business days.
Settled cash includes:
  • Deposited funds, such as a check or a wire, once the transaction posts
  • Cash from the sale of securities that have been paid for in full
Select to Check your "settled cash buying power" on the Balances page.
End of help pop-up content ."
If you pay for a purchase with cash that is yet to settle — or the account does not hold enough cash — a trade violation may occur. If that happens, restrictions may be placed on your account.

Tips to avoid trade violations in a cash account

  • Whenever possible, use settled cash to pay for purchases.
  • Check your "settled cash buying power" and "cash available to invest" on the Balances screen.
  • Double check that you're trading in the correct account.
  • Avoid day trading in a cash account.

Types of cash account violationsFootnote asterisk *

Freeride violations

A freeride occurs when you sell a security in a cash account before sufficient funds have settled to cover that purchase. This could be due to using proceeds from a sale before settlement, or from simply exceeding available funds. Either way, if you've sold the shares before paying for them, you've committed a freeride violation.

Technical violations (cash liquidation violations)

A technical violation occurs when you purchase a security and then sell a different security on a later date to cover that purchase.

Sale-not-long violations

Selling a security that isn't held in your account is also known as a sale-not-long violation. This is often the result of mistakenly placing a trade in the wrong account. If you realize that you've placed a trade in the wrong account, contact us as soon as possible. A sale-not-long violation is incurred once you close out the position you sold in error.

Margin account trade violations

With a margin account, you can borrow against the value of eligible securities to buy additional securities, protect yourself from overdrafts and cover unexpected expenses. Margin increases your buying power, but it also exposes you to the potential for larger losses.

Tips to avoid trade violations in a margin account

Types of margin account violationsFootnote asterisk *

Day trade violations

A day trade call occurs when you exceed your day trade Select to open or close help pop-up
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What is a day trade?

A day trade is an opening and closing transaction placed during the same trading day (including extended hours). This includes:
  • Buying a security long and selling the same security on the same trading day
  • Shorting a security and buying the same security to cover in the same trading day
  • Buying a security long and selling the same security short on the same trading day
  • Shorting a security and buying the same security long on the same trading day
End of help pop-up content buying power. If you're a pattern day trader Select to open or close help pop-up
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What is a pattern day trader (PDT)?

If you execute 4 or more day trades within 5 consecutive business days, or have a history of pattern day trading, you will be classified as a pattern day trader. Financial Industry Regulatory Authority (FINRA) rules require firms to monitor client accounts engaged in day trading.
Pattern day trading accounts are subject to a set of special margin rules that relate specifically to that practice. In addition to standard margin rules, day trade buying power is calculated and monitored, and the minimum equity threshold for day trading is increased to $25,000. Day trade buying power is based on the previous day's firm maintenance excess (FME).
End of help pop-up content , you'll be restricted if the call is not met. If you're a non-pattern day trader, you won't be restricted until incurring three unmet day trade calls within a 12-month period. You may buy and sell multiple times per day, as long as you don't open positions greater than your day trade buying power Select to open or close help pop-up
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What is day trade buying power?

Your day trade buying power is equal to the funds available in your pattern day trading margin account to place day trades. It is based on the maintenance requirement of the security being traded, and varies by product type and price per share. You'll only be able to see it online if your account has pattern day trader status.
Day trade buying power is based on prior-day balance figures and can be found on the Balances screen.
End of help pop-up content that you close on the same day.

Liquidation violations

A liquidation violation occurs when you have a Regulation T call Select to open or close help pop-up
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What is a Regulation T call?

A Regulation T Call occurs when required margin under Regulation T exceeds the value of your Special Memorandum Account (SMA).
End of help pop-up content and maintenance call Select to open or close help pop-up
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What is a maintenance call?

A maintenance call is when the value of your marginable securities minus your margin debit balance falls below the account margin maintenance requirement. This requirement is usually 30% for fully marginable equities, but it can be bigger due to higher margin requirements. In order to meet a maintenance call, you might have to liquidate a position, or deposit more cash or securities into your margin account.
End of help pop-up content at the same time, and sell securities instead of depositing cash or marginable securities in order to meet the Regulation T call.
Footnote asterisk * This is not an exhaustive list of ways you could incur a violation.
When you purchase securities, you may pay for the securities in full, or if your account has been established as a margin account with the margin lending program, you may borrow part of the purchase price from Merrill. If you choose to borrow funds for your purchase, Merrill's collateral for the loan will be the securities purchased, other assets in your margin account, and your assets in any other accounts at Merrill. If the securities in your margin account decline in value, so does the value of the collateral supporting your loan, and, as a result, we can take action, such as to issue a margin call and/or sell securities in any of your accounts held with us, in order to maintain the required equity in your account. If your account has a Visa® card and/or checks, you may also create a margin debit if your withdrawals (by Visa card, checks, preauthorized debits, FTS or other transfers) exceed the sum of any available free credit balances plus available money account balances (such as bank deposit balances or money market funds). Please refer to your account documents for more information.

Before opening a margin account, you should carefully review the terms governing margin loans. For Individual Investor Accounts, these terms are contained in the Margin Lending Program Client Agreement. For all other accounts, the terms are in your account agreement and disclosures. It is important that you fully understand the risks involved in using margin. These risks include the following:
  • You can lose more funds than you deposit in the margin account. A decline in the value of securities that are bought on margin may require you to provide additional funds to us to avoid the forced sale of those securities or other securities in your account(s).
  • We can force the sale of securities in your account(s). If the equity in your account falls below the maintenance margin requirements or Merrill's higher "house" requirements, we can sell the securities in any of your accounts held by us to cover the margin deficiency. You also will be responsible for any shortfall in the account after such as sale.
  • We can sell your securities without contacting you. Some investors mistakenly believe that they must be contacted for a margin call to be valid, and that securities in their accounts cannot be liquidated to meet the call unless they are contacted first. This is not the case. We will attempt to notify you of margin calls, but we are not required to do so. Even if we have contacted you and provided a specific date by which you can meet a margin call, we can still take necessary steps to protect our financial interests, including immediately selling the securities without notice to you.
  • You are not entitled to choose which securities in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, we have the right to decide which security to sell in order to protect our interests.
  • We can increase our "house" maintenance margin requirements at any time including on specific securities experiencing significant volatility and are not required to provide you advance written notice. These changes in our policy may take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause us to liquidate or sell securities in your account(s).
  • You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to you under certain conditions, you don't have a right to the extension.
If you have any questions or concerns about margin and the margin lending program, please contact the Merrill Investment Center at 855.332.5920.
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