What does the Cash Account Rule govern?

What does the Cash Account Rule govern?

• A. Emergency withdrawals from client accounts
• B. Settlement of securities transactions in cash accounts
• C. Interest rates on margin accounts
• D. Eligibility of securities for trading

Answer: (B)

The Cash Account Rule governs the settlement of securities transactions specifically in cash accounts. In a cash account, customers must pay for their securities transactions in full at the time of purchase, meaning that they cannot borrow funds from their broker to pay for the transaction. This rule is crucial for ensuring that investors have the necessary funds to cover their trades without extending credit, thereby promoting responsible trading practices and reducing the risk of default.

This differs from margin accounts, where investors can borrow money to purchase securities, leading to different regulations and requirements. Thus, the Cash Account Rule focuses solely on transactions where payment must be made in cash immediately, ensuring a straightforward and secure way for investors to manage their purchases.