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23 Cards in this Set
- Front
- Back
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Regulation T, U and X are responsible for what?
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T governs the extension of credit by B-d, U governs extension of credit by lenders other than B-D, X governs borrowers who obtain credit to buy securities
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Regulation T Deposit Requirement
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Customers who purchase securities must pay for them in full or pay 50% of long/short purchases of stock
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SRO Maintanence Requirements
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A margin account for a long position must maintain a 25% of market value and for short a 30% of market value |
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Customer Payment versus Transaction Settlement
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Reg T requires customers to promptly pay for purchases made in cash/margin accounts in T+5
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Frozen Accounts
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If a customer is late paying and received no extension they ahe their account frozen for 90 days during which they must pay for everything in advance. After that time they have then reestablished credit
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Difference between deposits in a cash and margin account
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In a cash account there is no credit extension and customer must deposit all the money, in a margin account the B-D can loan 50%
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What three documents are required to open a margin account?
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Credit Agreement- disclose all the terms of the loan between customer and B-d Hypothecation Agreement - States customer is pledging securities to brokerage firm and the firm can then give his securities to a bank to secure a loan. Firm is able to pledge amount equal to 140% that customer is borrowing Loan Consent - For a B-D to be entitled to lend customer's securities to another B-D, this is not required to be signed |
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Long Martin Position Equation
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Long Market Value - Debit Balance = Equity
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Special Memorandum Account (SMA)
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If a margin account has excess equity it is kept track of in an SMA. A line of credit from B-D which customer can use. Once it is established the customer can use it, even if excess equity disappears
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When you withdraw cash from a margin account it reduces what?
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The SMA and equity
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What is a restricted account?
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An account below the 50% Reg. T requirement but greater than the minimum maintanence req. The account functions as normal |
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SEC Regulation SHO |
A B-D is required to mark all sell order tickets as long or short. A seller order is long if the security being sold is owned by B-D and is marked short if seller doesn't own secuity or owns it but won't have it reasonably quickly to sell
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Short Position Margin Equation
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Credit Balance - Short Market Value = Equity
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Initial Equity Requirements for Margin Accounts
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For Long Positions: If purchase is below $2,000 deposit is 100% of purchase, if between 2-4,000 then deposit is $2,000. Above that is 50% For short: Below $4,000 deposit is $2,000, Above $4,000, it is 50% |
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Combined Long and Short Positions Equation
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(Long Market Value - Debit Balance) - (Credit Balance - Short Market Value) |
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Minimum Maintanance Requirements on Combined Accounts
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It is 30% (short position) + 25% (long position)
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What type of option has loan value in a margin account?
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LEAPS
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Margin is required for all options contracts except...
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when writing covered options |
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What is a pattern day trader?
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Any customer who executes four or more margin trades in a 5 business day period. Minimum equity requirements for their margin accounts is $25,000
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Difference between Strategy Based and Portfolio Based Margin for Institutional Customers?
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Strategy Based is looking at each portfolio position individually. Portfolio Based is looking at positions as offsetting, and a computer system can perform risk analysis on the portfolio
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What is the downside to Portfolio Margining?
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Clients have greater leverage to purchase margin, but if multiple accounts fall below maintanence the client has to pay them all in 3 days
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Margin Requirements for Exempt Securities
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US Gov't Securities: From 1-6% of market value depending on maturity Muni Securities: 7% of market value |
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Misceallenous Margin Requirements
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Convertible Bonds: 50% Investment Grade Non-Convertible Bonds: 10% Non-Investment Grade: Greater of 20% of MV or 7% of principal amount Arbitrage: 10% of long position Short against the box: 5% of long position |
