Chapter 13.2

Question 1

Hypothecation

Answer 1

The pledge of securities by a customer to the B/D as collateral for the loan received by the customer to purchase the securities on margin.

Question 2

What must FINRA member firms have on file before pledging customer securities as collateral for a loan from a bank?

Answer 2

Prior written authorization(Margin Agreement)

Question 3

When a Rehypothecation Loan is made between a bank and a B/D, the agreement is referred to as a what?

Answer 3

Call Loan or Broker Loan Agreement. Such agreements have fluctuating interest rates.

Question 4

When a B/D requests a loan from a bank to fund a customer’s margin account, it can use what percentage of the value of the customer’s debit balance?

Answer 4

Up to 140% of the value of the customer’s debit balance in the form of customer securities as collateral for the loan.

Question 5

Excess Margin Stock

Answer 5

The amount of stock in a margin account which exceeds 140% of the customer’s debit balance. Excess margin stock cannot be re-hypothecated, it must be segregated and held in safekeeping by the broker-dealer

Question 6

When can a member not lend customer securities?

Answer 6

If they are fully paid for or are in excess of 140% of the customer’s debit balance unless the member first obtained from the customer a separate written authorization designating the particular securities to be loaned.

Question 7

Regulation U

Answer 7

Federal reserve regulation which governs the amount of credit that a bank can extend for the purpose of purchasing or carrying margin stock when the credit is secured by securities.

Question 8

When one B/D lends stock to another B/D:

Answer 8

• The loans are callable on demand
• The loans are marked to the market periodically
• The lender retains all rights of ownership except voting rights
• The loans are secured by a deposit equal to the market value of the security loaned