Merrill Edge - Trading Violations (2024)

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Cash account violations tab 1 of 2 selectedMargin account violations tab 2 of 2

Cash account trade violations

Cash accounts, unlike margin accounts, require transactions to be paid for with available funds by the time the trade "

settlesSelect to open or close help pop-upSelect to close help pop-up ×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 postsCash from the sale of securities that have been paid for in fullSelect toCheck your "settled cash buying power" on the Balances page.End of help pop-up content

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.

Learn moreabout freeride violations

Consequences: Your account will be restricted to funds-on-hand trading for 90 days, meaning you can only buy securities with settled funds.

Example 1

For illustration purposes only

Your account has $1,000 in total cash available.

Monday: You purchase 100 shares of ABC stock for a total cost of $2,000. You need to deposit an additional $1,000 before the purchase settles on Wednesday (trade date + two business days).

Tuesday: You haven't deposited the $1,000, but you sell the 100 shares of ABC stock for total proceeds of $2,500.

Wednesday: Your account is now restricted for 90 days due to freeriding because you sold the security without bringing in funds to pay for it. We may cancel the restriction if the required $1,000 deposit is made by Friday (purchase date + four business days).

Example 2

For illustration purposes only

Your account has $1,000 in total cash available.

Monday: You sell 100 shares of ABC stock for a total of $2,000, with a settlement date of Wednesday.

Tuesday: You buy 100 shares of XYZ stock for a total cost of $3,000 with a settlement date of Thursday. You then sell the 100 XYZ shares for $4,000 with a settlement date of Thursday.

Wednesday: Your account is now restricted for 90 days due to freeriding because you sold a security bought with unsettled funds. Had you waited until Wednesday to sell the XYZ shares (the date your initial sale of ABC would settle), there would be no violation. The restriction may be eligible to be removed if the required $2,000 deposit is made by Monday (purchase date + four business days).

Steps to resolve freeride violations

A freeride violation can be waived if you bring in cash from another account no later than the due date of the freeride obligation. The funds must remain in the account for one business day.
You may receive up to two waivers in a six-month period.
A freeride violation can be canceled if you bring in cash from another account "as of" the origin date or prior. The funds must remain in the account for one business day.

Tips to avoid freeride violations

Place buy orders with settled funds.
If you upgrade your cash account to a margin account but still have a restriction due to a freeride violation, you'll be restricted to trading with your available Special Memorandum Account (SMA) and available cash for 90 days. You won't be permitted to end the day in a Regulation T call and/or a cash debit while this restriction is active.

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.

Learn moreabout technical violations

Consequences: If you incur three technical violations in a rolling 12-month period, your account may be restricted to funds-on-hand trading for 90 days. This means you can only purchase securities with settled funds.

Example

For illustration purposes only

Your account has $1,000 in total cash available.

Monday: You purchase 100 shares of ABC stock at $100 per share for a total cost of $10,000. You must deposit an additional $9,000 in cash before the purchase settles on Wednesday (trade date + two business days).

Tuesday: You haven't deposited the $9,000, but sell 90 shares of XYZ stock for $9,000 to cover the purchase.

Wednesday: As you sold your shares of XYZ to pay for your purchase of ABC, you've incurred a technical violation. The violation can be canceled if a deposit of $9,000 is made by Friday (trade date + four business days).

Steps to resolve technical violations

A technical violation can be removed if cash is deposited within four business days of settlement of the unpaid purchase.

You'll need to bring in cash equal to the technical violation amount to have the violation canceled.

Tips to avoid technical violations

Ensure your sell orders have executed before placing buy orders, if using those funds.
Please review order entry cutoff time(s) prior to entering a redemption order for a money market fund. For more information, see our list of money market funds.

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.

Learn moreabout sale-not-long violations

Consequences: If you have a sale-not-long violation that results in an unpaid purchase obligation, or if you incur any sale-not-long violations three times in a rolling 12-month period, your account will be restricted to funds-on-hand trading for 90 days. This means you can only purchase securities with the settled funds "on hand."

Example

For illustration purposes only

You have two cash accounts, Account A and Account B. You hold 100 shares of ABC stock in Account A and have entered a good-till-cancel order to sell 100 shares of ABC in Account A.

Monday: You move all your shares of ABC from Account A to Account B and neglect to cancel your sell order. The sell order executes in Account A, which no longer holds the shares. You receive $5,000 in proceeds for the sale.

Wednesday: You realize the ABC shares sold in the wrong account. This account has no cash other than the $5,000 in proceeds, so you use these proceeds to buy back 100 shares of ABC to correct your mistake.

Thursday: This action results in a sale-not-long violation because Account A had no cash other than the erroneous sale proceeds and you didn't move the shares back from Account B.

Steps to resolve sale-not-long violations

A sale-not-long violation can be removed if the required shares are deposited within two days of settlement of the sale.

Tips to avoid sale-not-long violations

Wait until shares are held in your account before you sell them.
Remember to cancel outstanding sale orders for shares moved between accounts.

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.

MAP5822296-08022024

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Merrill Overview:
- Explanation of services offered by Merrill, emphasizing its differences, pricing structures, and rewards programs like BofA Preferred Rewards.
Investment Accounts and Products:
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- Information about different investment products including stocks, mutual funds, ETFs, fixed income & bonds, CDs, options, and margin trading.
Investment Tools and Planning:
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Investing Insights & Education:
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Cash Account Violations and Resolution:
- Different types of cash account violations explained, such as freeride violations, technical violations, and sale-not-long violations.
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Margin Account Information:
- Explanation of margin accounts, potential risks involved, and terms related to margin lending.
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