What is Good Faith Violation (GFV)?

Good Faith Violations (GFV) occurs when purchasing securities using unsettled funds is followed by the selling of those securities prior to the settlement date (transaction day +2 business days) of the fund used for the original purchase. Day trading using a cash account can easily lead to Good Faith Violations (GFV).

For example, you bought 100 shares of ABC stock and sold them for $2,000 on Monday. The proceed from the sale will settle on Wednesday (T+2), but on Monday you decide to go ahead and invest the unsettled proceed of $2,000 in XYZ stock. On Tuesday, one day before the ABC sale proceed settles, you sell the XYZ stock. In this case, the trades incurred a Good Faith Violation.

Each Good Faith Violation remains on the account record for 12 months. An accumulation of 4 GFVs in a 12-month period will result in an account being restricted for 90 calendar days where only settled funds can be used for purchases. An accumulation of 5 GFVs in a 12-month period will result in an account being restricted for 90 calendar days during which the account will be placed under liquidation only.

Please see below for restrictions related to accumulation of GFV strikes:

In a 12-month period, accounts that receive 2 strikes can still purchase securities using unsettled funds; however, accounts that receive 3 strikes can only purchase securities using settled funds. At this point, if you would still like to purchase with unsettled funds, you may call in for broker assistance.  You may also choose to apply for Margin to avoid GFV strikes in your account.

If an account received 4 strikes and a 90-calendar day restriction, you may only purchase securities with settled funds, broker-assisted trades will also be limited to using settled funds only. For the 5th strike, an account will be restricted to liquidation only for 90 calendar days.  Account will not be allowed to trade in Margin (Margin application is not accepted) until 90 days term is served.

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