Cash accounts are required to abide by industry-wide settlement rules that were established through Regulation T of the Securities and Exchange Act of 1934. These rules dictate that cash proceeds from Stock, ETF, and mutual fund trades will settle on the third business day after the trade date. Option trades, on the other hand, will settle the next business day.
When to sell
The key to knowing when you can safely sell a security in your account without violating Regulation T, is understanding whether the security you want to sell was bought using cash that was already settled or has yet to settle. If the security you want to sell was bought using settled funds that were in your account, you may sell at any time you want. If the security you want to sell was purchased using unsettled funds from recent sales, you should not plan to sell the security in question until the funds used to make the purchase become settled. If you buy on unsettled funds and then sell before the money used to make the purchases become settled, you will be in violation of Regulation T.
If you violate Regulation T, your account would be restricted from trading online for 90 days and all trades during the restriction will incur an additional commission of $20. Please note that Ally Invest will try to prevent you from selling a stock bought with unsettled funds, but ultimately you need to understand the rules.
Please review the two examples below to see how Regulation T can affect the date in which you can safely sell without any restrictions.
On Monday you decide to buy $1000 of ABC stock and the last sale in your account was exactly one week ago. Because all the cash in your account has had time to settle, you may sell ABC at any time after your purchase takes place.
On Monday you decide to buy $1000 of ABC stock, however this time you are using proceeds from a sale of XYZ that was made earlier that same Monday. Because the proceeds from the XYZ sale will not become settled until Thursday morning (sales of stock settle on the third business day after the trade date), you will need to hold your shares of ABC until at least Thursday morning to avoid being in violation of Regulation T. If you must sell ABC stock prior to settlement occurring, a broker can assist you over the phone.