Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

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If a customer cannot pay for a trade by the Regulation T deadline, how long is the account frozen after a sellout?

30 days
60 days
90 days
120 days

The correct answer is: 90 days

When a customer fails to pay for a trade by the Regulation T deadline, which is typically two business days after the trade date, the broker-dealer may proceed to sell the security to cover the transaction, a process known as a sellout. Following a sellout, the customer's account is subject to a freeze, which restricts activity. This freezing of the account typically lasts for 90 days. During this period, the customer cannot execute any trades in the account unless certain conditions are met, such as depositing sufficient funds to cover the previous shortfall. This practice serves as a protection for both the broker-dealer and the integrity of the market by ensuring that customers meet their financial obligations and that funds are available for trade settlements. Consequently, the 90-day period allows the customer time to rectify their account status before being allowed to trade freely again.