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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 257077  
Subject: Re: 3 Day Settlement Rule Date: 2/24/2014 2:48 PM
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This is the reason to have a margin account even though you do not want to trade on margin.

So far as I know the 3-day rule harks back to a time when people did not hold the stocks in street name - that is at the broker. So when you sold something, you got in your car, drove to the broker, and gave him the stock. This might take some time.

Then somebody (Merrill Lynch maybe) developed a cash management account. You got to hold all your stocks and cash (money market, also, I think developed by Merrill Lynch) in one account. Then you could buy and sell freely, but there was still that 3-day rule. Hence you need a margin account even if you do not trade on margin.

Maybe somebody else has more knowledge of the history. I am old enough to remember the invention of the cash management account, but also old enough to have forgotten the details.
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