Brokerage Mechanics Checklist

Equities settled under the SEC's T+1 rule since May 2024. Sale proceeds are credited the next business day after the trade date, not the same day. This lag governs what counts as "settled cash" in a cash account.

Clearing (NSCC) nets obligations across all trades so participants exchange less cash and fewer securities. Settlement (DTC) is the actual book-entry transfer of beneficial ownership. Both happen after the fill.

A fail-to-deliver occurs when a seller cannot deliver the securities by the settlement date. Persistent FTDs can trigger close-out requirements and may affect short positions or options exercises.

Your broker holds shares in the Depository Trust Company's name, with you as the beneficial owner. This affects how dividends, proxy votes, and tender offers are processed on your behalf.

Common mistakes include selling a new position before its funding proceeds settle in a cash account (good-faith violation), misidentifying the ex-dividend date, or failing to maintain margin during market hours before a sell settles. Buying with unsettled proceeds is permitted; the violation occurs only when you sell the funded position before those proceeds settle.

Equity options exercise and assignment settle on T+1, the same day as the underlying security. Being assigned on a short call when you do not hold the underlying can produce an unintended short stock position that must settle immediately.

A good-faith violation occurs when you buy a security using unsettled proceeds and then sell it before those proceeds settle. Three violations in a rolling 12-month period triggers a 90-day restriction at most brokers (a common policy threshold, not a universal SEC rule; your broker's specific terms govern).

Freeriding is a more serious violation: you buy a security with no settled funds, then sell it before paying. A single freeriding violation triggers an immediate 90-day restriction, and the broker must freeze unsettled-fund purchases.

Standard margin accounts can hold 2x overnight buying power. Qualified PDT accounts may access 4x intraday buying power for day trades only, positions held overnight revert to 2x. Using 4x overnight triggers a margin call. Note: FINRA's intraday margin requirements became effective June 4, 2026, replacing legacy PDT day-trading margin provisions; brokerage firms may transition through October 20, 2027, so check your broker's current rules.

Brokers display buying power differently. Confirm you can locate the "settled cash" or "available to trade without margin" balance in your account view before placing trades in a cash account.

ACH deposits may take 2-5 business days to fully settle, though brokers sometimes extend provisional buying power before funds clear. Wires clear faster (same or next business day) but fees apply. Using provisional buying power and then withdrawing can trigger a violation.

FINRA Rule 4210 sets a minimum 25% maintenance margin for long positions. Most brokers require 30-40% for standard equities and higher for volatile stocks. When equity falls below this threshold, a margin call is issued immediately.

Brokers are not legally required to notify you before liquidating marginable positions to meet a margin call. The customer agreement grants the broker this right. During fast markets, positions may be closed before you can react.

Brokers impose higher "house requirements" on penny stocks, low-float names, and highly volatile securities, sometimes up to 100%, effectively making them non-marginable. Check before entering a position with borrowed funds.

Margin interest is charged daily on the debit balance and billed monthly. Interest rates are often tiered (lower for larger balances). Overnight balances accrue interest; intraday trades that close by end of day typically do not.

Most margin agreements allow brokers to lend your shares to short sellers. Lent shares may not be protected by SIPC if the broker fails. Cash accounts do not allow hypothecation of securities.

A 2x leveraged position loses 100% of equity on a 50% stock decline, before margin interest. Define a maximum leverage ratio and a "reduce-to-cash" trigger before using margin, not after a margin call arrives.

Brokers pass through the SEC Section 31 fee (a small percentage of the sale amount) on every equity and options sell. The rate is set annually by the SEC. Options also incur FINRA's Trading Activity Fee (TAF) per contract.

Many zero-commission brokers route retail orders to market makers who pay for the order flow. The market maker profits from the bid-ask spread; the implicit cost is that your fills may be slightly worse than the NBBO midpoint.

Even zero-commission brokers may charge $0.50-$0.65 per contract for options plus regulatory fees. Exercise and assignment often carry a flat fee ($0-$15 per event). On small-premium contracts, these fees can exceed the premium received.

Transferring an account to another broker via ACATS typically takes 5-7 business days. The delivering broker may charge a full or partial transfer fee ($50-$150). Confirm before assuming a "free" transfer.

At a 10% margin rate on a 2x position, the leveraged asset must return more than 10% per year before any position gain is realized. This hurdle compounds if the position is held for multiple years.

SIPC protects securities and cash held at member firms against broker insolvency, not investment losses. Futures, forex, commodity contracts, and crypto (in most cases) are not covered. Amounts above the limit are unsecured claims.

SIPC membership can be verified at sipc.org. Not all entities that call themselves brokers are SIPC members, crypto exchanges, unregistered offshore platforms, and many forex dealers are not. Confirm independently rather than trusting marketing materials.

Many larger brokers carry private excess-SIPC insurance (through Lloyd's of London or others) that provides additional coverage per customer above the statutory $500,000 limit. The terms vary, read the policy rather than relying on marketing summaries.

In a margin account. The broker can re-pledge your securities as collateral for its own borrowings (rehypothecation). If the broker fails while your shares are lent, recovery may be partial and delayed even within SIPC limits.

FINRA BrokerCheck (brokercheck.finra.org) shows regulatory actions, suspensions, and customer disputes for broker-dealer firms and their registered representatives. Verify before transferring large amounts.

To receive a dividend you must own the shares by end of day before the ex-dividend date (not the record date). Under T+1 settlement, buying on the ex-date means settlement falls after the record date and no dividend is received.

OCC adjusts option contracts for stock splits (standard splits result in more contracts, reverse splits in non-standard contracts with odd share counts or prices). Non-standard contracts can have wider spreads and reduced liquidity.

Tender offer deadlines typically require broker submission 2-3 business days before the offer expiration. Missing the broker's internal deadline means missing the corporate action, even if the offer is still technically open.

Spin-off shares are distributed to holders of record on the record date. The cost basis of the original position is typically split between the parent and the spin-off according to the IRS allocation ratio. Brokers may or may not auto-calculate this correctly.

If the original lender recalls their shares, your broker must locate a new borrow or force you to cover your short position, potentially at an unfavorable price. Hard-to-borrow stocks are especially susceptible to sudden recalls.

Regulation NMS Rule 611 requires trading centers to maintain policies and procedures reasonably designed to prevent trade-throughs of protected quotations, subject to the rule's exceptions. It does not guarantee that every market order fills at the exact NBBO snapshot visible at submission. Your broker also carries a separate best-execution duty under FINRA Rule 5310 requiring reasonable diligence to seek the most favorable terms available under prevailing market conditions.

Rule 606 quarterly reports disclose where brokers route orders and what payment or rebates they receive. This data helps you assess whether your broker prioritizes execution quality or PFOF revenue.

Market orders in thinly traded stocks can fill far from the quoted price if the spread is wide or the book is thin. Market orders placed during pre/post-market or at the open auction can execute at prices significantly removed from the prior close.

Limit orders guarantee a price but not a fill. A buy limit order at $50 will not fill above $50 but may not fill at all if the stock gaps up. For illiquid or fast-moving securities, limit orders are generally preferable to market orders.

A stop order becomes a market order when the stop price is reached. In a fast market, the resulting fill may be far below the stop price (slippage). Stop-limit orders specify a floor price but may not execute at all if the market moves through the limit.

Extended-hours sessions have lower liquidity, wider spreads, and different routing. Most brokers only accept limit orders in extended hours. GTC orders may or may not carry into extended sessions depending on your order parameters.

Most brokers expire GTC orders automatically after 60-90 days. Corporate actions (splits, dividends) may cancel open GTC orders. Forgetting an open GTC order is a common cause of unintended fills after prices return to a forgotten level.

During a regulatory halt or circuit breaker, open orders are typically queued but not canceled. When the halt lifts, a rush of orders can cause the stock to open significantly above or below the halt price, filling queued orders unexpectedly.

Consistent fills above the midpoint on buys (or below on sells) indicate poor execution quality or wide-spread securities. Your trade confirmation and broker's trade history tools let you audit this. Compare across brokers if execution matters to your strategy.