Mr. Robert Cappola
Senior Vice President
Operations
Lewco Securities Corp.
Harborside Financial Center
34 Exchange Place
Jersey City, New Jersey 07311-3988

Dear Mr. Cappola:

This letter is in response to your letter of February 4, 1999, concerning a customer who sells a fully paid security in a cash account and purchases another security of equal value on the same day. We assume that your question is based on a cash account that holds securities but no cash.

A creditor may purchase a security for a customer in a cash account if either one of two conditions is met. Under section 220.8(a)(1)(i), a creditor may purchase a security for a customer if "there are sufficient funds in the account." Under section 220.8(a)(1)(ii), a creditor may purchase a security for a customer if "the creditor accepts in good faith the customer's agreement that the customer will promptly make full cash payment for the security�."

If a customer were to sell a fully paid security on the same day that he or she purchased a different security of equal value, the transaction would be permissible under section 220.8(a)(1)(ii), because full cash payment for the new security would be received "promptly" (in this case, by settlement date). However, the result is different if the cash account is subject to the 90-day freeze provision under section 220.8(c). Under this provision, "the privilege of delaying payment beyond the trade date shall be withdrawn" while the freeze is in effect. In other words, when a 90-day freeze is in effect, the customer must satisfy section 220.8(a)(1)(i) and cannot rely on section 220.8(a)(ii). A customer who sells a security on trade date to pay for another security purchased on that day does not have "sufficient funds in the account" on trade date. The transaction is therefore impermissible if the account is subject to a 90-day freeze.

This is a staff opinion only, as the matter has not been presented to the Board.

Sincerely,

(Signed) Scott Holz

Scott Holz