What are the ramifications of a customer making a practice of liquidations?
If a customer has three liquidations within a rolling twelve-month period, FINRA expects the firm to restrict the account to funds on hand for 90 days. However, if upon review a firm does not restrict an account after the third liquidation, then a waiver of the 90 day restriction must be granted, in writing, by two officers of the firm and maintained for audit purposes. Firms should also be aware that granting waivers as a practice may be regarded as a circumvention of FINRA rules. A customer purchases an equity security in a portfolio margin account. The firm captures an intra-day deficiency. The customer puts on a risk reducing transaction and on an intra-day basis eliminates the deficiency. Under FINRA rules, would this be considered a liquidation? (Added 09/07) No, because the transactions occurred during the same day. From an operational standpoint, it may be difficult for a customer to meet the deficiency intra-day by the deposit of funds and/or securities. Taking market action i
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