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37 Cards in this Set

  • Front
  • Back
Regulation T does not apply to which 2 things?
Purchases of $1,000 or less

Government securities
Describe a frozen account
100% of cash is required for all purchases

The account is usually frozen for 90 days
If you want to sell stock short, you must have one of these. Also called a leverage account
A margin account
The margin in a customer account is what?

What percentage does REG T require?
The amount the customer must deposit in the account.

Reg T requires the customer put up 50%
The amount of $ the brokerage lends the customer is called what?
The loan value.
The SMA most closely resembles a...?
line of credit
Like a credit card
Marginable securities include..... but not.....
Marginable securities include:

Registered securities
-Securities listed and traded on the floor of an exchange. Exchange determines which of these are marginable.

OTC Margin Securities
-Federal Reserve Board chooses which of these are maginable

And Exempt Securities
- Government and municipal securities
But nonmarginable securities are called Unregistered securites.
-These include any investment accompanied by a prospectus.New issues and open end investment co's
Non marginable securities can also be expressed as
Securities with "no loan value"
Name this agreement
When a customer agrees that a broker dealer can take securities from their account for loans
Name this agreement
When a brokerage firm deposits a customer's securities at a bank for collateral on a loan.
What percentage of the DEBIT BALANCE is the broker dealer allowed to pull out to use as collateral for the bank as part of the rehypothecation process?
140% of debit balance, but the broker/dealer can not accept a loan cash amount of more than than the debit balance even if the bank is willing to loan more.

Remember two words. USE - 140% of debit balance

Borrow - 140% of debit balance
The rate the B/D is charged from the bank is called
Broker Loan Rate or Call Loan Rate
If the FA has discretionary authority on an account and the customer wants to add margin capabilities...
The FA must obtain a margin agreement AND supervisory approval before exercising discretion on the margin account
Initial for Reg T Margin Requirement on a LONG account
$2,000 min, / 50% after
If the purchase is for less than 2,000 of stock, you only have to pay 100% of the vale
Initial for Reg T Margin Requirement on a SHORT account
2,000 min 50% after
no exceptions
Maintenance Requirement for Short Sale of LOW PRICED STOCK
0 - 5 dollars per share
$2.50 per share or 100% of market value - whichever is greater.

5-17 dollars per share
$5.00 is the required amount the investor needs to put up

Greater than $17.00 per share
50% of the market value is the required deposit

2,000 minimum still applies
Equity = ?
Equity =
Current Market Value - Debit Balance
When a margin account long drops to below 50% equity, what happens?
The account is restricted. This means that the account must abide by the federal retention rules. All sales that occur in the restricted margin account - 50% of the proceeds must be retained in the account to reduce the debit balance. The other 50% is released so the customer can do whatever with it.
25% NYSE minimum maintenance requirement is?
If the equity in a margin account long falls below 25%, a maintenance call happens and the customer must bring in money or stock. If they don't the brokerage will liquidate securities. The money/stock is due IMMEDIATELY.
Determining the condition of a margin account long
1) Look at the current mkt value of the account
2) Cut it in half
3) Compare to the debit balance of the account

If Debit Balance < 1/2 market value ------ Excess Equity

If Debit Balance = 1/2 market value --------- at REG T

If Debit Balance > 1/2 market value --------- Restricted Acct
Excess Equity shortcut
(margin account long)
Excess Equity = 1/2 of the market appreciation
Excess equity in a margin long account gives how much buying power?
2x buying power
twice as much as excess equity

Buying power = 100% of appreciation
SMA can be increased by:
- Appreciation of market value
- Cash deposits
- CASH dividends (not stock)
- Long sales of securities
SMA can be depleted by
- Making new margin purchases
- Making cash withdrawals
Same day substitution
If a customer wishes to replace a security in a restricted long margin account, he must do so at a dollar for dollar basis. If he wants to remove $10,000 worth of ABC, he must deposit $10,000 worth of DEF
If a customer wants to replace a stock in a restricted margin account long
He has to deposit 50% of the stock value in cash. If he wants to remove $10,000 worth of XYZ, he needs to deposit $5,000 cash.
A short margin account never has a...?
A debit balance.

The stable number in the short margin account is the credit balance. Since the B/D doesn't lend the client money, the B/D lends the client stock to sell
Minimum Maintenance for a SHORT margin account is what?
On a short margin account, do customers pay or earn interest on credit balances?
Trick question. There is no interest earned or charged on a short margin account.
Equity in a short margin account is calculated by what formula?
Short sale proceeds
+ Reg T deposit
= Credit Balance

Credit balance
- CURRENT market value
Purchasing stock on a When Issued or "W I" basis
Securities that a customer wants to buy that is physically not available yet. Ex. a stock that will be splitting in the near future. You want to buy the SPLIT shares... but you'll have to wait until that happens.

Right now you have to put a DEPOSIT down for those shares.

The deposit is 25% or $2,000 of the market value. Whatever is greater.
Margin accounts are prohibited for ....?
Margin accounts for fiduciaries require what?
Written authorization
When a long sale is made, the value of this does not change. Only the percentage changes. What is this?
Equity. EQUITY VALUE remains the same
Standard or traditional options have no _____ ________ and can not be purchased on _________
Standard options have no LOAN VALUE and can not be purchased on MARGIN
Minimum maintenance on municipal bonds is?
15% of market value or 7 % of principal. Whichever is greater
Unless an extension of time is granted, a customer must be "bought in" if he does not deliver securities which he sold long for his account within how many business days after the settlement date?
The customer is allowed 10 business days after settlement date to deliver securities before he will be bought in.