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28 Cards in this Set
- Front
- Back
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The Fed Reserve Board was given the power to control margins on securities under this Securities and Exchange act....
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1934 "Regulation T"
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Reg T only applies to Non-Exempt Securities... which controls what?
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credit from broker to customer
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What is the second level of margin regulations?
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applied by NYSE and NASD, which have their own margin requirements. "minimum maintenance margins".
- Ongoing |
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Hypothecation
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margin agreement where customer pledges the securities that are purchased in the account to the brokerage firm.
- in return for the pledge, the brokerage firm loans the customer a portion of the purchase price - Loan is called "debit balance" |
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Rehypothecation
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brokerage firm has right to repledge the securities to a bank.
- bank loans funds to broker (call or broker loan) --> broker then reloans funds to customer |
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Regulation U
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credit relationship from bank to broker is controlled by this
- premise: brokerage firm cannot borrow more money from banks using customer securities as collaterol than the actual amount that they loan to their customers |
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What are the major exempt securities?
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- U.S. Governments
- Agency Issues - Municipal Issues - Commercial Paper |
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If the Fed Reserve has no power to set initial margins for exempt securities, who does?
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The Exchanges --> securities are marginable based on minimum maintenance margins
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Even though corporate bonds are non-exempt, does the Fed Reserve set margins for these?
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No, they CHOOSE not to. Only exchange minimum maintenance margins apply
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Marginable Non-Exempt Securities
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- actively traded securities
- specific OTC issues where there is sufficient trading volume |
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Non Marginable securities
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- Non marketable
- OTC issues not included in the OTC margin list - New issues for the first 30 days after issuance |
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What are the 3 types of accounts that Regulation T defines?
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- Cash account
- Margin Account - Arbitrage Account |
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Cash Account
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- Reg T requires collection by settlement + 2 days
- extension can be filed with FINRA to add an additional 3 business days - if not paid by then, account is frozen for 90 days |
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Call amount based on net purchases each day -- proceeds from sale that day can be used to meet Reg T Call
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Buys 200 shares @ $50 = $10,000
Sells 300 shares @ $20 = $6,000 Total net = $4,000 --> 50% margin requirement in account = $2,000 |
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Can proceeds from subsequent day be used to meet Reg T?
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No
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Customer Buys - Reg T requires payment when?
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by Settlement + 2
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Customer Sells and Fails to deliver must be bought when?
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in 10 business days after settlement
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What is the minimum account balance for a day trading account?
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$25,000
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Cheap Stock Rule
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an additional min margin requirement is set if a customer wishes to sell short an "inexpensive" stock.
Used to discourage this |
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The minimum margin to short a stock under $5 per share is the greater of ________% of the sale amount or $________ per share
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100%
$2.50 |
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The minimum margin to short a stock valued at $5 per share or more is $_______ per share or _____% of the sale amount, whichever is greater
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$5
30% |
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FINRA: Stocks/Convertible Bonds Maintenance Margins
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Long Position: 25%
Short Position: 30% |
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FINRA: Corporate Bonds Maintenance Margins
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Greater of 20% of MV or 7% of face
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FINRA: Muni Bonds Maintenance Margins
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Greater of 15% of MV or 7% of face
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FINRA: Options Maintenance Margins
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100% of premium
LEAPS: 75% of premium if over 9 months to expiration |
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Critical maintenance Margins
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Reg T (Long): 50%
Reg T (Short): 50% Min Main Margin (Long): 25% Min Main Margin (Short): 30% |
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Arbitrage Min Margin
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5% on long position
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Portfolio Margins are only available to whom?
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institutional investors and wealthy individuals
100k min requirement |
