Margin Accounts Flashcards
Define long margin account
customer purchases securities & pay interest on amount borrowed
define short margin account
stock is borrowed and sold short
What are the 3 components of the margin agreement?
credit agreement, hypothecation agreement, loan consent form
how are the securities held in the hypothecation agreement?
street name (aka name of the firm) - broker/dealer is known as the nominal or named owner. customer is considered the beneficial owner
Define Regulation T
part of securities Act 1934 to regulate extension of credit. customers must deposit min. of 50% market value within 5 business days
What is the difference btwn margin and marginable in regards to reg T?
margin = amt of equity to be depositied to buy securities in a margin account vs. marginable describes securities that can be used as collateral in acct
What securities are exempt from Reg T?
US Treasury Bills/notes/bonds, gov’t agency issues, muni securities
define marking to the market
recalculation of margin accts to check status of min requirements are met
What are the three terms to describe the activity in long margin accounting?
Long market Value (LMV), Debit register (DR) and Equity (EQ). (DR is amt of $ borrowed)
what is the equation for long margin accounting?
LMV-DR=Equity (Long market Value - debit register = equity)
Define a restricted margin account
when equity in acct is < Reg T amt but >or= to min maintenance requirement
define a house minimum on a margin call
when the maintenance level is higher than the FINRA min. maintenance rules
define excess equity (EE) in a margin account
amount of equity exceeding Reg T requirement
Define what is a special memorandum account (SMA) in a margin account.
it is the buyer’s excess purchasing power. For every $1 increase in MV of the margin account, $0.50 is created in the SMA. therefore, when stocks go up by $10k, SMA is worth $5k
does the SMA in a margin account decrease if the EE decreases?
as long as SMA still exists in the account, it is always the highest amount that was in the account. so if start with 10 and it would fall to 5 b/c securities decrease, as long as there is still SMA, it stays at 10
