What is a Good Faith Violation (GFV)?

“Good Faith Violation” – (watch our explanatory video below) occurs in situations where you buy a title and sell it before paying in full for the initial purchase with funds settled. Only cash or proceeds from the sale of fully paid securities qualify as “liquidated funds”. Selling a position before it is paid out of liquidated funds is considered a “breach of good faith” because no good faith effort was made to deposit additional money into the account prior to the settlement date. The following examples illustrate situations that may incur violations in good faith.

IMPORTANT! Accounts with three “Good Faith Violations” in a period of 12 (twelve) months will be restricted to the purchase of securities with cash settled for a period of 90 days.

Example 1:
Available money = $ 0
On Monday morning, a customer sells Y shares, receiving US$ 5,000 in account funds.
On Monday afternoon, the customer buys X shares for US$ 5,000
If shares X are sold before Wednesday (settlement date of the sale of Y), there will be a breach in good faith, since shares X are not considered fully paid before the sale.

Example 2:
Available money = US$ 5,000
On Monday morning, a purchase is made for US$ 5,000 of share X.
On Monday at noon, the customer sells stock X for US$ 5,500
Near the market close, the customer buys $ 5,500 of share Y.
At this point, no good faith violation occurred because the customer had sufficient funds to purchase X.
If Y is sold before it is paid (liquidation), a violation of “Good Faith” will have occurred.

Example 3:
Available money = US$ 10,000
Unpaid cash sale credit = US$ 5,000
(referring to the sale made on Friday – settlement on Tuesday / T+2)
On Monday morning, the customer buys US$ 15,000 of share Y.
A breach of “Good Faith” occurs if that customer sells share Y on Monday.
The purchase is not considered fully paid because the US$ 5,000 is not considered sufficient funds until it is paid off on Tuesday.
For more information visit: INVESTOR ALERTS AND BULLETINS

Por

William Castro

Formado em economia pela UFRGS – RS. Em 2004, iniciou sua carreira na Solidus Corretora, com passagens pelo Koliver Merchant Bank e Banco Alfa. Foi sócio, analista-chefe e um dos principais porta-vozes da XPInvestimentos. Também foi sócio e líder de gestão da VGRGestão de Recursos. Possui as certificações Series 7 e 24. É estrategista-chefe, sócio e porta voz da Avenue desde 2018.

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