Margin Rules Flashcards
Reg T sets out rules for handling _____ accounts
margin - note that it only applies to non-exempt securities
After initial Reg T requirements are met, _____ has ongoing margin requirements
FINRA
The firm’s loan to the customer is called the _____ balance
debit
Funds are borrowed from the bank by the brokerage firm at the _______ rate
broker loan rate - also called the call loan rate
Broker is limited to rehypothecating customer securities equal to _____ of debit balance
140%
Only _____ traded securities are marginable
actively
Non-marginable issues are:
- non-marketable securities
- OTC issues not included on the OTC margin list
- new issues for the first 30 days after issuance
Under Reg T, the 3 types of accounts where transactions can take place are:
- cash account
- margin account
- arbitrage account
Under Reg T, payment must be made no later than ____ days past ______
2 days past settlement (S+2)
If you can’t pay by S+2, or by extension date if given, then the position/account______
position is sold and the account is frozen for 90 days
when account is frozen, cannot buy unless _____ and cannot sell unless _____
cash is in hand or cannot sell unless securities are in hand
The Fed Reserve sets a margin requirement for arbitrage accounts. T/F
False. FINRA does
FINRA margin requirements for arbitrage accounts are:
- 50% for stocks and bonds
- 100% of premium for options (except LEAPs)
- 75% of premium (for LEAPs) - if within 9 months of expiration, then 100%
Reg T states that if a customer buys and sells securities on the same day, margin is calculated off the “______”
net purchase amount
If a margin requirement from FINRA is higher than Reg T, the customer must put up the ______ requirement
higher - FINRA
Maintenance calls must be met ______
promptly (3 days)
Min. margin for a new long account is ______
$2,000
If total price of the securities being purchased is less than the min margin requirement, then the margin call is for _____
the total price of the securities
Min. margin for a new short account is _____
$2,000
If total price of the securities being shorted is less than the min margin requirement, then the margin call is for _____
the full $2,000 minimum (since the loss on the short is potentially unlimited)
Min margin for day trading accounts is _____
$25,000
To discourage short sales of very cheap stocks, the min margin requirements are ______
very high
Min margin to short a stock under $5 is the greater of
100% of sale amount or $2.50 per share
Min margin to short a stock above $5 is greater of
30% of sale amount or $5 per share
FINRA min maintenance margin requirements
- 25% long stocks and convertibles, 30% short
- corp debt greater of 20% of MV or 7% of face (short and long)
- muni greater of 15% of MV or 7% of face (short and long)
- all options (except LEAPs) 100% of premium (long)
- LEAPs 75% premium, 100% if in 9 months to expiration (long)
Critical margin requirements for Series 7 are:
- Reg T: 50% long stock and 50% short stock
- Min maintenance: 25% long stock and 30% short stock
For arbitrage accounts, FINRA sets min margin at ____ of long market value
5% - there is no Reg T requirement
Min margin for day trading accounts is greater of _____ or ______
$25,000, or 25% of the intra-day high market value
A day trade is defined as
the purchase and sale of the same security on the same day
A DVP is
delivery versus payment (same as COD, cash on delivery) - this is when the delivery is made with the understanding that the customer will pay when the securities are received
Regulation T regulates credit from ___ to ____; Reg U regulates credit from ___ to ____
Reg T = broker to customer
Reg U = bank to broker
Can listed options be bought on margin?
NO, the cannot. LEAPs can.
Can mutual fund shares be bought on margin?
NO, they cannot. Must be paid in full.
Min margin requirements are calculated off the transaction value or the closing price that day?
The closing price that day
Reg T does not cover DVP transactions. T/F
True.
