How does Regulation T govern the usage of funds in a cash account?
When shares of stock or option contracts are sold in a cash account, there is a settlement period during which time the cash and the stock or options are exchanged. For stocks, this settlement period is 2 business days. For options it is 1 business day. When a stock or option is sold, these unsettled funds are available to use for purchase. However, if the newly purchased stock or option is sold prior to the settlement of the previous sale, this transaction violates Regulation T. Violations of Regulation T could result in restrictions being placed on the account. Please click here to see the Regulation T section on the SEC Website ( http://www.sec.gov/investor/alerts/cashaccounts.pdf).