Chapter 9 Improvement Areas

Question 1

When must payments for purchases be received by in a cash account? What must happen if this deadline is not hit?

Answer 1

• by the 4th business day following trade date.
• if payment is not received, must either: obtain an extension, or cancel or liquidate the transaction.
• rule does not have to be applied if customer owes 1000 or less.

Question 2

If a transaction is cancelled or liquidated for failure to make prompt payment, what is the penalty?

Answer 2

• account frozen for 90 days. Any purchases made during this time require funds to be in account before order is placed.

Question 3

Under fed reserve regulations, what securities can be purchased on margin?

Answer 3

• registered securities
• OTC margin stock.
• OTC stock with no loan value must be purchased in a cash account

Question 4

What types of securities CAN NOT be purchased on margin?

Answer 4

• new issues of stocks or bonds
• open end investment companies (mutual funds)
• traditional or standard listed put and call options

Question 5

Initial equity required in a margin acct

Answer 5

• 2,000, exception to the minimum is a purchase less than 2,000 you must pay for the purchase in full

Question 6

Short sales

Answer 6

• at least 2,000 must be deposited in the acct for a short sale, regardless of the amount.
• short sales can only be made in a margin account, never in a cash account.
• if a client has no positions in their acct and executes a long sale of a security, it is considered short sale if they haven’t actually exercised anything into the security.

Question 7

Retention requirement for margin acct

Answer 7

• 50% of value which must be held in a restricted account upon sale or withdrawal of securities. 50% of the net sales proceeds may be withdrawn on trade date in a restricted margin acct.
• customer account restricted by 8k, customer makes a trade to sell 7k of stock and buy 2k worth of stock resulting in 5k of net sales proceeds, the max cash withdrawal privilege is 50% of 5k (2500)

Question 8

Long position of 200 shares of ABCD at 37, minimum maintenance would be:

Answer 8

• 7400 is total market value.
  7400 x .25 = 1850 min maintenance

25% for long
30% for short

Question 9

How to determine how low the mkt value of a long stock position can decline before account reaches min maintenance?

Answer 9

debit balance / .75

Question 10

Hypothecation example of how much of the debit balance can be used as collateral for a loan? How much can be borrowed?

Answer 10

• 140% of the debit balance can be used as collateral

- 100% of debit balance can be borrowed/withdrawn. No more.

Question 11

Excess margin stock

Answer 11

• the amount of stock in margin account which exceeds 140% of customers debit balance. Unless member first obtained a separate written auth designating the particular securities to be loaned.

Question 12

Declaration Date 
Ex dividend date 
Record Date 
Payable Date 
(DERP)

Answer 12

• D: date on which dividend is declared. must own at least 1 business day prior to ex date to get dividend.
• E: date on which stock begins to trade without dividend. buyer would not be entitled to dividend if stock is purchased after ex date. it is NORMALLY THE BUSINESS DAY BEFORE THE RECORD DATE. and determined by the exchanges, not by board
• R: date corp closes updating of stock record book. persons whose names appear on book as of this date will be sent dividend
• P: date the dividend is actually paid.