margin accounts Flashcards
purpose of a margin account
it allows an investor to use some cash and some credit to purchase securities
who regulates the extension of credit in the securities industry?
federal reserve board
what are the eligible marginable securities?
- exchange listed
- OTC nasdaq issues
what are the noneligible marginable securities?
- OTC non-nasdaq issues
- new issues for first 30 days
- options contracts
3 forms used for new margin accounts
- credit agreement
- hypothecation agreement
- consent to loan agreement
what is the credit agreement?
required document
-details all margin account requirements and obligations
what is the hypothecation agreement?
required document
-investor pledges collateral to broker
what is the consent to loan agreement?
optional document
-allows broker-dealer to lend customer securities to other customers
two sides of regulation T
broker-dealer to customer
two sides of regulation U
bank to public or broker-dealer
regulation t is set by?
federal reserve
what percentage required for reg T?
50%
minimum maintenance requirement on long account?
25%
minimum maintenance requirement on short account?
30%
to borrow on a margin account, what is the minimum amount of equity required?
$2,000
purchase price is less than $2,000, what is required deposit?
the purchase price
purchase price is between $2,000-$4,000, what is required deposit?
$2,000
purchase price is greater than $4,000, what is the required deposit?
50% of purchase price
formula for calculating equity on long margin account?
long market value - debit = equity
formula for calculating equity on short margin account?
credit - short market value = equity
formula for calculating equity on combined short and long margin account?
long market value - debit + credit - short market value = equity
what is the formula for calculating how low a long margin value can fall before a maintenance call?
debit / .75
what is the formula for calculating how low a short margin value can fall before a maintenance call?
credit / 1.30
what happens to excess equity in a margin account?
equity is above reg T (50%)
-it credits memorandum account (SMA)
what happens if a margin account has a restricted status?
equity is below reg T (50%)
if an account is restricted, how can you buy more securities?
you must deposit 50% of new purchase
if an account is restricted, what happens if you want to sell securities?
if you want to sell in a restricted account, only 50% of sale proceeds can be withdrawn.
what happens if there is a maintenance call on a margin account?
equity has fallen below minimum maintenance
- deposit cash (1 X call)
- deposits (2 X call)
SMA on account is increased by?
- excess equity
- non required deposits
- sale of stock in restricted account (50% of proceeds credit SMA)
- if dividends pay interest to account
SMA on account is decreased by?
- cash withdrawals
- securities purchased
debit balance on margin account is increased by?
interest charges
debit balance on margin account is decreased by?
- dividends paid on stock
- interest received on bonds
- sales proceeds
what is the buying power of SMA?
2 X SMA
what is the loan value of SMA?
1 X SMA
what is commingling?
mixing a customers securities in with accounts of the broker/dealer… not allowed
