Lesson 11: Customer Accounts Flashcards
Margin Account
Securities purchased with borrowed funds
Need to sign a margin agreement
Margin Agreement
Hypothecation Agreement
- pledge securities as collateral
Credit Agreement
- terms of the loan (interest rates)
Loan Consent Agreement (optional)
- firm can lend out your securities to others
Marginable (def)
A security is marginable if it can be purchased on margin (borrowed money)
Marginable Securities
Exchange traded stocks
OTC issues approved by feds
closed end funds
ETFs
LEAPS Options (>9 months)
Fixed Income Securities
Non Marginable Securities
Means you are not allowed to borrow money to buy these securities
OTC issues NOT approved by Fed
Std Options (< 9 months)
Annuities contracts
New issues (IPOs, follow-ons)
- marginable after 30 days
Mutual Funds
LEAPS
Long term options contracts
Discretionary Account
The customer gives trading authorization to a registered rep
So customer gives power of attorney (in writing) so that the RR can decide what asset to invest in, how much capital of mine to use, and whether to buy or sell. All without telling me
Minor Account
Minors can’t open an account, but one can be opened for them (UTMA/UGMA)
- they still can’t trade, so there needs to be a custodian (max of one)
Trust Account
a trust is a legal entity created to benefit another person or persons
Settlor
contributes assets to a trust
Trustee
holds legal title to the assets in the trust
Beneficiaries
Assets held in trust are for the trust’s beneficiaries (multiple beneficiaries are allowed)
Customer Trade Confirmation
a written trade confirmation delivered by settlement
Customer Statement
account statements offer a snapshot of the account:
- purchases + sales
- interest + dividends
- funds in/out
Holding Customer Mail
Firms can hold customer mail on written request (testable point)
Regulation S-P: Information Security
establishes privacy standards to ensure the security and confidentiality of customer data
Securities Investor Protection Corp (SIPC)
non profit protection against losses of cash + securities held by a brokerage firm
- ie if you hold ABC stock with a firm, and it goes bankrupt SIPC protects you against that
- no coverage for market losses, bad recs, fraud (ponzi scheme), currency + commodities
- protected up to 500,000 total (250k cash)
- not backed by us gov, owned by members of securities industry
SIPC Separate Customers
Each account is considered a separate customer
- individual account, joint account, IRA, roth IRA, and minor would all be considered separate customers
SIPC Filing Date
the date at which an investor’s securities will be valued at
Federal Deposit Insurance Corp (FDIC)
insures deposits in banks (ie checking + savings accounts)
