1.2.3.4 Reasons for Freezing an Account
Sometimes an account is frozen. When an account is frozen, transactions in the account are prevented and any open transactions will be cancelled. Checks presented on a frozen account will not be honored. There are three general scenarios where an account may be frozen.
One scenario is when a customer wishes to transfer an account from one firm to another. This process is explained in a later section. One of the steps is for the carrying firm (the firm that holds the account before the transfer) to freeze the customer’s account, cancelling all open orders (except options that will expire within seven days) and refusing new orders.
A second circumstance is when a customer dies. In this case, the representative must cancel all open orders, mark the account “deceased,” freeze the account, cancel all powers of attorney, and wait for instructions from the executor of the deceased’s estate.
Third, an account may be frozen by government or regulatory authorities because of suspicious activity, suspected criminal activity, civil actions, or liens filed against the account.
90-day freeze. A different kind of freeze occurs when a customer freerides in a cash account. Freeriding is the prohibited practice of purchasing securities and selling them before the settlement date to acquire the funds to pay for the purchase. Typically, if