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78 Cards in this Set
- Front
- Back
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What is the percentage that broker dealers can pledge (rehypothecate) of a customer's debit balance as collateral |
Broker dealer is permitted to rehypothecated customer margin securities in an amount up to 140% of the customer's debit balance. Securities not rehypothecated are excess margin securities. These must be kept in segregation and reduce to possession or control |
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For every dollar increase in market value in a long account, how much SMA is created |
50 cent |
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When must payment in a cash account be made |
In full within 5 business days of the trade date |
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Which of the following statements is not true. Securities in a discretionary account maybe rehypothecated. A principal may review all account activity frequently. A principal must accept the account in writing. A principal must review all trades in the account promptly after execution. |
All are true |
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When can cash dividend in a customers margin account be withdrawn |
Is a customer wishes to withdraw cash dividends, the customer is do so within 30 days of receipt. Otherwise they become a permanent reduction of the debit balance, and reflected as increased equity in the account. |
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A customer opens in margin account by purchasing 300 shares of XYZ at $60 and deposits the required margin. The stock rises to $70 on the following day. On the third day, after the release of disappointing earnings report, the stock falls to $50. What is the equity and SMA on this account after the changes in market value |
Equity of $6K. SMA of $1.5K. Market value adjust. However SMA is not affected by decline on a long account |
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How you determine the minimum maintenance for long accounts |
25% of the long market value |
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How you determine the minimum maintenance for short accounts |
30 percent of the short market value. This is not the credit balance |
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What are 2 items that can cause a special memorandum account to decrease |
The purchase of long securities on margin. The short sale of securities. SMA once created does not go away until used. Using the SMA to buy more security or sell more sure it will decrease the amount of SMA |
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For every dollar increase in market value in a short account, how much SMA is created |
$1.50 |
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And a short margin account how is the credit balance calculated |
The credit balance is comprised of proceeds from the sale plus the deposit |
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And a short margin account how is the credit balance calculated |
The credit balance is comprised of proceeds from the sale plus the deposit |
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A customer open a merchant account with a broker dealer and signed a loan agreement. The loan consent agreement allows the firm to |
Loan out the customer's margin securities . .this is considered another way to financed a customers debit balance |
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The SMA is a line of credit with one restriction. What is it |
It may not be used if account equity would fall below minimum maintenance |
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What is free riding and what is the penalty |
Selling prior to paying is termed free riding and it is prohibited. The penalty for free riding in a cash or margin account is that the account will be frozen for 90 days, and orders will not be accepted without cash for security on deposit in advance. |
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A customer wants to buy a $12,000 worth of stock using other marginable securities owned as collateral for the purchase. What market value should his owned securities have. |
$12,000. Stock buys stock dollar for dollar for margin purposes. With $12,000 worth of fully paid marginal securities, the customer can borrow $6000 against them |
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Who sets margin requirements on exempt securities |
Exempt securities (government securities) are set by DEA designated examining authority. The Federal Reserve Board sets the initial margin requirements for non exempt securities |
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How much would SMA's price increase if a customer bought $22K worth of marginable stock in the existing margin account and fully paid for the transaction |
Assuming that customer paid for the security in full, he would generate $11K and SMA. Because the customer need pay only half of the securities value, the additional cash paid, $11K, would be considered a non required cash deposit and be credited to SMA. |
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Can government bonds, corporate convertible bonds, and non convertible corporate bonds be purchased on margin |
Yes |
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If the initial transaction is less than $2K, how much must an investor deposit in a new margin account |
100% percent of the market value of investment |
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Our regulation to extension for payment automatically granted |
No. In certain cases where. Customer cannot make payment by the fifth business day following the trade date, the broker dealer can request an extension from its SRO, self regulatory organization. Extensions are not automatic and they may be denied. |
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May customer securities be commingled with other customers securities |
Under Sec will 15 C 21, a customer's security may be commingled with those of other customers if all customers express their consent in writing. The broker dealer can pledge these customers securities or loan them out with customer consent. Customer securities may NEVER be commingled with broker dealer firm positions. |
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Before opening a margin account b/d must provide customers with what |
A risk disclosure document |
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What is the buying power for day traders |
Four times the maintenance margin excess at cob previous day. Compared to 2:1 for regular customers. In other words for the value of equity in the account. |
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Extension of time in which to make payment of balance is due on purchases made in cash account can be granted by |
FINRA, registered stock exchanges and the Federal Reserve Banks when exceptional circumstances |
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When securities are sold in a restricted account how much of the proceeds are released to SMA |
50% |
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What is the regulation T requirements for writing a covered call |
0 |
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Long market value at maintenance is the point to where the long market value in an account must fall for a margin call of 25%. How is it computed |
. To compute divide the debit balance ( reg t requirement) by .75 |
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What are some of the ways in which a customer can meet a regulation T margin call |
By depositing cash or by sending in securities equal to the loan value of the call (twice the amount the margin call). |
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What does not increase SMA in a customers short margin account |
Increase in the current market value. An increase in current market value will cause a loss of equity in a short account. SMA represents excess equity |
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What is required if a customer request that their broker dealer hold their fully paid securities |
The broker dealer is required to segregate customer fully paid for securities and inform the customer that the securities can be withdrawn at any time |
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What is SMA |
It stands for special memorandum account. A line of credit that a customer can borrow from or used to purchase securities. It is created in a long account when market value rises. Declines do not affect SMA. |
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How does utilizing SMA affect the debit loan balance |
SMA is used as borrowing and buying power. When customers utilize SMA, they increase their debit balance by the full amount of the purchase |
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What are excess margin securities |
the amount by which the market value exceeds 140% customers debit balance |
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what is the short market value at maintenance |
short market value divided by 1.3% |
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What are the exceptions to the minimum maintenance rules for cheap stocks |
For stock trading under $5 per share, a customer must maintain 100 percent of the value or $2.50 per share, whichever is greater. For stock trading at $5 per share and above, the minimum requirement is $5 per share or 30%, whichever is greater |
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What market securities must be segregated in a margin account |
A broker dealer is required to segregate excess margin securities, which are defined as the amount by which the market value exceeds 140% customers debit balance |
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Regulation T requires that a new issue, IPO,may not be purchased on a margin account until after |
30 calendar days following the public offering date |
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In a restricted margin account, if a customer fails to pay for a new purchase, the broker dealer must sell out stock with a value of |
Twice the margin call must be met to meet the regulation T margin call. |
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What is the interest paid by margin customers on money borrowed called |
Variable rate based on the broker call rate |
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What is the formula for equity for a combined margin account |
EQ=LMV+ CR - debit - SMV. It's looking for combined regulation T or minimum maintenance, first calculate the long, the short and add the two together |
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How do you calculate SMA |
50% of the excess of market value over debit . It is created if the value of the count rises above the initial margin requirement |
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How do you calculate CR in a short margin account |
enter the short market value then add the regulation T requirements at 50% |
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How do you calculate EQ in a short margin account |
EQuity=CR-SMV |
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What is the short market value, SMV, at maintenance |
CR/1.3 |
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What is in the margin agreement |
A credit agreement, a hypothecation agreement, a loan consent form. The loan consent form is optional and allows the broker dealer to loan out the customer's margin securities |
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A customer has a long margin account with a market value of $12K, a debit balance of $8K and SMA of $2K. How much can the customer withdrawal from the |
$1K. SMA may not be used if account equity would fall below minimum maintenance. And this account maintenance equity is $3K and current equity is $4K. Only $1000 may be withdrawn |
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A customer opens at new margin account and the first trade is the short sale of 100 shares of ABC at a price of $18 per share. What is the required margin deposit |
$2,000 the minimum is never waved for short sale margin requirements |
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A customer has a long market value of $60,000 and a debit of $28000. The broker dealer must segregate securities with a market value of |
$39200 140% of debit balance |
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Regulation T applies to what type of accounts |
Both cash and margin accounts or nonexempt securities |
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What is the formula for computing the long margin value at maintenance |
Debit balance / .75 |
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A customer has a margin account with a market value of $20K a debit balance of $12K, no SMA. If the customer sales $2K worth of stock, the amount release to SMA is |
$1000. This is an example of a restricted account with equity below 50% regulation T requirement Consequently only 50% is released to SMA |
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What is a mark to market |
a daily evaluation of an account based on the current market value all securities in the account. A mark to market occurs when one party to a contract becomes partially unsecured due to a change in the stock market value covered by a contract. Mark to market is a request for additional collateral. It does not require the use of a due bill |
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What is excess equity |
In a margin account is the amount of equity exceeding regulation T requirement |
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It's an investor has an established margin account with a current market value of $6K and a debit balance of $2.5K with a regulation T at 50%, how much buying power does the investor have |
$1,000. Equity is equal to $3.5K. Excess equity is current equity - the regulation T requirements. Buying power is calculated by multiplying the excess equity by 2 |
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Is a customer purchases stock in an existing margin account and fails to make payment within the time period, the broker dealer can use SMA, request an extension of time from the DEA, sell out the unpaid portion. The dealer will not |
Liquidate the entire account and close it |
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If an investor has been established margin account with a short market value of $24K and a credit balance of $30K, the maintenance call will be for |
1200. The equity is $6K (CR - SMV). The maintenance requirement is $7.2K (30% of the SMV). Therefore the maintenance call is $1200 |
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Customer wants to buy $12K worth of stock using his other marginable securities as collateral for the purchase. What CMV of securities must he deposit |
$12 K. Stock buys stock dollar for dollar. The customer can borrow $6,000 against them |
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Initial transaction in a margin account a customer sales short 200 ABC at 18 for sure. The credit |
$5.6K. Even though the regulation T requirement is $1.8K, there is a $2K minimum equity requirement for short account. The investor receives $3.6K from the proceeds and deposits $2K |
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Things about SMA |
Equity increase SMA in long by 50% and short by 150% ($1.50 for every $1 decrease in MV) |
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A member may comingle securities of two or more customers with |
With the customer's written permission |
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What is CPM customer portfolio margining |
It is a different way to calculate margin requirements for an account based on the net risk of an entire portfolio of securities rather than a standardized percentage applied to each security. The margin requirements are lower than the margin requirements calculated conventionally because they are based on the net risk of the portfolio. |
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Extension request must come |
For self clearing broker dealers the extension request will come from the broker dealer. However for introducing firms they must come from a broker-dealer clearing agents |
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A customer buys 1000 shares of ABC at $50 a share. The customer has debit balance of $25,000. Assuming the broker dealer has hypothecated the maximum amount of stock permissible for the customer, how many shares should the firm be holding in segregation |
Segregated shares equals total shares less the hypothecated shares. Hypothecated shares= 700 (25k @1.4 /50) therefore 300 shares are excess marginable shares that should be segregated |
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A customer has a margin account with a market value of 190,000 and a debit balance 90,000. What is the long market maintenance requirement |
120,000. Debit balance divided by. 75 |
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Initial margin requirements on nonexempt securities are set by |
FRB |
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If a customer is using securities to eliminate a restriction, the customer must sale or deposit in an amount equal to |
Twice the restrictions |
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What should a representative determine before accepting a short sale of security |
The representative must make affirmative determination, ascertain the stocks location and weather be customer can deliver it within 3 business days. |
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For an existing margin account with an SMA balance, can a customer buy securities using the SMA balance to meet full for partial regulation T requirements |
Yes |
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What are the advantages of margin accounts for broker dealers |
Margin account loans generate interest income and margin customers typically trade larger positions, generating higher commissions for the firm |
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What happens if a margin payment is late |
The broker dealer may apply to the designated examining authority (DEA) for an extension,. For introducing broker dealers,who do not clear their own trades, the request is made by the clearing firm. For an amount less than $1000 the broker dealer may choose to take no action |
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Margin rules prohibit day trading accounts from using |
Account guarantees |
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What is the buying power of a customer purchasing stocks on margin |
2 times SMA |
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If a customer buys and sells stock on the same day in a restricted how much can be withdrawn |
The customer may withdraw 50% of the net sales proceeds. Keep in mind that withdrawal of sales proceeds in a restricted account is restricted to 50% |
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What is short selling or shorting against the box |
A tax strategy used to defer capital gains into the next text here. Selling shares short of a company when you are ready long locks in any gain you have a long position. |
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Listed options expire Saturday immediately following the third Friday of the expiration. At what time |
11:59 pm |
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SMA may not be used 4 |
To meet minimum maintenance requirements |
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When may cash dividend be removed from a customer's margin account |
Within the first 30 days after receipt otherwise they become a permanent reduction of the debit balance |
