Good Faith Violation in Cash Accounts
A Good Faith Violation (GFV) occurs when an account has liquidated securities that were bought on unsettled proceeds in Type 1. Or, in other words, selling a position that was purchased with unsettled funds before the sale that originally generated the proceeds (used to make the purchase) settles, will result in a GFV.
An account sold 100 shares of Apple then bought 200 shares of Westar on 5/26. Before the Sell of 100 shares of Apple settled, the account holder sold the 200 shares of Westar on 5/27(1 days later), therefore creating a GFV on 5/28. If customer waited until settlement of 5/29 to process the sell of Westar, then they wouldn’t have a GFV.