Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 27 > Customer Accounts > Flashcards

Customer Accounts Flashcards

1
Q

What does Reg T not apply to

A

US government, agency and municipal securities

Non-marketable securities. OTC not listed on exchanges

New issues under 30 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who applies the initial margin and the minimum maintenance margin

A

Initial margin: Federal reserve

Minimum maintenance margin: FINRA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a requirement for opening a margin account

A

Signing a margin agreement that includes hypothecations in street name

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What regulation controls the bank to broker relationship

A

Regulation U - brokerage firms cannot borrow more money from banks using customer securities as collateral than what they loan to their customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How much are banks allowed to loan to firms for customers

A

70% of pledged collateral

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How much collateral are firms allowed to pledge to the bank

A

140% of customer debits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What controls the credit from broker to customer?

A

Regulation T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Who sets the margins for corporate bonds

A

FINRA through minimum maintenance margins.

Reg T does not apply to corp bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Under Reg T, what are the three types of applicable accounts

A

Cash account
Margin account
Arbitrage account

Plus:

Omnibus accounts
BD credit account
Market functions account (proprietary accounts)
Non-securities credit account (commodities, foreign exchange)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the Reg T requirements for a cash account

A

Payment must be made in full

payment must be made no later than 2 business days after settlement (S+2 = 4 business days after trade date)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the terms of a Reg T extension

A

Exceptional circumstances

allows +2 business days

a second Reg T may be granted for +2 business days

If customer does not pay by extension date, the firm is obligated to sell out the position and freeze the account for 90 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the terms of a frozen account

A

Customer cannot buy unless firm has cash in hand

Customer cannot sell unless firm has securities in hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the terms of a margin account

A

Customer can buy or sell short as long as Reg T initial margin is met

If Reg T does not apply, then FINRA min maintenance margin must be met

If a security is not marginable, it must be paid in full

Payments must be collected promptly, no later than 2 business days after settlement (S+2)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is an arbitrage transaction

A

Simultaneous buying and selling short of the same security (short against the box)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What margin is required for Arbitrage accounts

A

FINRA minimum maintenance margins

Since there is no risk, the Federal reserve does not set an initial margin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the Reg T for convertible bonds

A

50%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the Reg T for corporate bonds

A

Not applicable

(Therefore FINRA minimum maintenance applies)

Greater of 20% MV or 7% of face

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the Reg T for long stock options

A

100% of premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the Reg T for Long LEAPs

A

75% of premium; within 9 months of expiration 100% of premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the Reg T for short stock options

A

20% of the MV of underlying security + 100% of premiums - any out the money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the Reg T for short LEAPS

A

20% of the MV of underlying security + 100% of premiums - any out the money

(same as short stock options)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

De minimis rule for margin calls

A

Margin calls are not sent for amounts less than or equal to 1k

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What if minimum margin amount is more than Reg T amount?

A

The higher amount applies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

In what cases is the minimum margin amount higher than the Reg T margin

A

US Government and municipals

Day trading accounts

Leveraged ETF’s

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Under FINRA What is the minimum dollar amount to open a new long margin account

A

2k

Minimum does not apply to fully paid securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the rule for minimum dollar amounts on a short margin account

A

Cannot be less than 2k of equity at any time.

This is due to the potential loss being unlimited

This could require a customer depositing more than 100% of their short value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Minimum amount required for day trading accounts

A

25,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Cheap short stock rule

A

To short a stock valued from $5-$10: minimum margin is $5 per share

To short a stock valued from $0-$5: minimum margin is 100%, but never less than $2.50pps

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Minimum maintenance margins for stock (Long/Short)

A

25% / 30%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Minimum maintenance margins for convertible bonds (Long/Short)

A

25% / 30%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Minimum maintenance margins for Corporate debt

A

Greater of 20% of MV or 7% face

Same for both long/short

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Minimum maintenance margins for Municipal bonds

A

Greater of 15% of the MV or 7% of face

Same for both Long/Short

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Reg T and Minimum maintenance margins for options (Long/Short Naked)

A

Long
Reg T: Not applicable
Min Maint: 100% of the premium

Short Naked (greater of):
Reg T: 20% of the MV of underlying security + premium - out of the money
Min Maint: 10% of the MV of underlying security + premium

34
Q

Minimum maintenance margins for LEAPS (Long/Short)

A

75% of premium; when within 9 months of expiration 100% of premium /
10% of the MV of underlying security + premium

35
Q

What defines a day trader

A

Customers who executes 4 or more day trades in a 5 business day period

36
Q

What is a day trade sale

A

a purchase and a sale of the same security on the same day

37
Q

Minimum margin for a day trading account

A

The greater of 25,000 or 25% of the highest intra-day MV

38
Q

How is buying power calculated in a regular margin account

A

2x the excess margin above Reg T 50%

39
Q

How is buying power calculated in a day trading account

A

4x the excess margin above the minimum requirement

40
Q

Minimum Margin requirement for Leveraged ETF’s

A

Minimum margin requirement is multiplied by the ETF’s leverage

200% is 2 times 25%
300% is 3 times 25%
etc

41
Q

How often does an account need to be marked to market

A

Every day

42
Q

What does excess equity equal

A

SMA (Special memorandum account)

The customer is free to borrow this amount in cash or can use the amount to buy additional shares

43
Q

SMA formula in a long account

A

50% of MV - Debit

44
Q

If borrowing SMA what happens to the debit balance in a long account

A

It increases

45
Q

Every excess (over 50%) $1 in the long account increases SMA by

A

50 cents

46
Q

When does an account become restricted

A

When the equity balance is between 49%-26%

47
Q

What are the rules for a restricted long account

A

If purchases are made: Normal Reg T applies

If a sale is made: 50% of the proceeds must be retained to reduce debit balance (retention requirement). The remaining to SMA and can be borrowed.

48
Q

Formula to calculate the required MV to be at 25% maintenance margin for long accounts

A

Debit balance / .75

49
Q

In a long account what happens to SMA when the MV changes

A

MV increases = SMA increases by 50 cents for every excess dollar

MV decreases = SMA stays the same (due to market crash acceleration risk)

50
Q

In a long account what happens to SMA when cash is deposited

A

SMA increases with every dollar of excess equity

51
Q

In a long account what happens to SMA when dividends are received

A

SMA increases with every dollar of excess equity

If the monies are not taken out within 30 days, they leave SMA and cannot be borrowed

52
Q

A firm can avoid a net capital charge when acting as an agent on loans of securities if it: (3)

A

Discloses the identity of each party to the other (lender / borrower)

has each party agree in writing that the obligations of the BD does not include a guarantee of performance relating to the stock loan

Has each party expressly agree in writing that the other party’s remedies in the event of default are limited as to the BD

53
Q

What happens if there is dividends or stock split on borrowed stock

A

The borrower must provide the consideration to the true owner

54
Q

What type of account can short sales be performed in

A

Margin accounts

55
Q

On a short account How does excess equity affect SMA

A

It increases SMA

56
Q

What happens to SMA when MV changes on a short account

A

MV decreases = SMA increases by $1.50 for every dollar of decline in excess equity

MV increases = SMA stays the same

57
Q

What is the formula for SMA on a short account

A

Equity - 50% of MV

58
Q

When is a short account restricted

A

between 49% and 31%

59
Q

What are the rules to a restricted short account

A

Short sale made: Normal Reg T initial margin rules apply

If purchase made: 50% of proceeds must be retained to increase equity (retention requirement)

60
Q

What happens if minimum maintenance margin is breached on both long and short

A

A call will go out to the customer to bring back to minimum maintenance promptly (25/30)

61
Q

What is the formula to calculate the minimum MV required for minimum margin on short account

A

Credit balance / 1.3

62
Q

What is the margin and cash deposit for naked calls and puts

A

20% of the MV of the underlying stock
+ premium
- out the money
=Reg T (margin requirement)
- premium received
= cash deposit (Margin call)

63
Q

What is the minimum maintenance margin for naked stock options

A

10% of the MV of the underlying stock
+ premium
= Min maintenance requirement

64
Q

Must always have the higher of initial margin or maintenance margin on what type of transactions

A

Options

Deep out of the money transactions end up using 10% formula while in the money transactions use 20% formula

65
Q

What is the margin in a broad based stock index

A

The higher of:

Initial margin:

15% of MV
+ 100% of premium
- Out of money

Min Maintenance

10% of the MV
+ 100% of the premium

66
Q

Short call covered by long margin requirement

A

No margin on short call. Long margin applies

67
Q

Short put is covered by short stock margin requirements

A

No margin on short put, only on short stock position.

68
Q

What is the margin and cash deposit on a straddle

A

20% of MV of in the money side
+ both premiums
= Reg T
- premium received
= cash deposit

69
Q

What is the margin on a spread

A

Margin = Max potential loss
Debit spread max loss = is debit balance (difference between premiums)

Credit spread max loss = Difference in strike prices - difference between premiums

70
Q

Regulation that controls credit from bank to broker

A

Regulation U

71
Q

Regulation that controls credit on securities on all lenders other than banks and BD’s

A

Regulation D

72
Q

Regulation that places responsibility of Federal Reserve regulations on both borrower and lender

A

Regulation X

73
Q

How much tentative NC must a clearing broker have to enter a joint bank office (JBO) arrangement?

A

25,000,000 tentative net capital

74
Q

How much NC must a clearing broker have to enter a joint bank office (JBO) arrangement?

A

1,000,000 min NC per participant (exclusive of its ownership interest in the JBO)

75
Q

Regulation SHO - Rule 203 dictates on short sales

A

the security had been borrowed or an arrangement has been entered

There is reasonable grounds to believe the security could be borrowed and delivered on settlement

BD must create an easy borrow list - updated daily

Exchanges must have a hard to borrow list, updated daily

76
Q

Securities on the hard to borrow list have the following characteristics

A

Clearing short position at NSCC of 10,000 shares or more

Clearing short position represents at least .5% of the total shares outstanding

Must meet these tests for 5 business days to be on the list

77
Q

Under Reg SHO, when do securities need to be bought in if on the threshold list

A

If on the threshold list for 13 consecutive days following trade date

(35 days for restricted threshold securities)

78
Q

ALL Fails to deliver buy out rule under SHO

A

Long: no later than market opening on T+5 (S+3)

Short: No later than market opening on T+3 (S+1)

79
Q

Purchasing power created by a maintenance margin excess in a pattern day trading account is:

A

400% of the maintenance excess

80
Q
A

Series 27 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions