Good faith violation example 1:
Cash available to trade = $0.00
- On Monday morning, a customer sells Y stock netting $5,000 in cash account proceeds.
- On Monday afternoon, the customer buys X stock for $5,000.
- If the X stock is sold prior to Thursday (settlement date of the Y sale), a good faith violation would be charged as the X stock is not considered fully paid for prior to sale.
Good faith violation example 2:
Settled cash = $5,000
- On Monday morning, a purchase is made for $5,000 of X stock.
- On Monday mid-day, the customer sells the X stock for $5,500.
- Near market close, the customer purchases $5,500 of Y stock.
- At this point no good faith violation has occurred because the customer had sufficient funds for the purchase of X.
- If Y is sold prior to being paid for (settlement) then a good faith violation will have occurred.
Good faith violation example 3:
Cash available to trade = $10,000 minus cash credit from unsettled activity = $5,000 (proceeds from a sale of stock the prior Friday – trade settles on Wednesday)
- On Monday morning, customer purchases $15,000 of Y stock.
- A good faith violation occurs if this customer sells the Y stock on Monday or Tuesday.
- The purchase is not considered fully paid for because the $5,000 proceeds are not considered sufficient funds until they are settled on Wednesday.