Regulation T violations
Reg T violations – what they are and how Symplany handles them
Key takeaways
- A Reg T violation restricts an account for 90 days.
- During this time, trades must be cash-covered.
- Symplany automatically manages these accounts, including sequencing trades to ensure compliance.
- You and your clients don’t need to take any action.
If you have questions, please reach out to Symplany Support.
What is a Reg T violation?
A Regulation T (Reg T) violation occurs when an investor purchases securities in a margin account without having enough funds to cover the purchase. The Federal Reserve requires that investors pay for securities within a set timeframe, and when this rule is broken, the account is flagged with a violation.
When a Reg T violation happens, the account is restricted for 90 days. During this period, the account holder must have sufficient settled cash in the account before making new purchases.
This restriction is handed down by the SEC and cannot be removed by the custodian or Symplany.
What this means for your client’s account
- Temporary restriction: the account will remain flagged for 90 days.
- Cash-only trades: purchases can only be made if the account has enough cash to fully cover them.
- Custodian notifications: the custodian may send emails or notices about the violation, but these are informational only—no action is required by you or your client.
How Symplany handles Reg T violations
Our software is designed to automatically manage accounts that are under a Reg T violation:
For the most part, a Reg T violation doesn't impact trading.
- Standard withdrawals and deposits continue to trade as usual.
- It's during a rebalance (where buys and sells go through the same day) that Symplany needs to intervene.
- Manages buy/sell timing: When an account needs to place both buys and sells at the same time, Symplany will send through the sells first, and then place the buys the following market day (after the sells have settled). This ensures the account always has sufficient cash to cover the purchases.
- Maintains compliance: No margin-based purchases will be attempted during the violation period.
- No advisor action required: Advisors can rest assured that accounts are being handled appropriately without needing to intervene.
References
- Investopedia: Regulation T (Reg T) – Overview of Regulation T and margin requirements.
- FINRA: Margin Accounts – FINRA’s rules and guidance on margin accounts.
- eCFR: 12 CFR Part 220 (Regulation T) – The official rule text for Regulation T.
- Wikipedia: Freeriding (stocks) – Explanation of free riding and resulting account restrictions.