Margins

Question 1

Regulation T

Answer 1

Sets margin requirement on allowed securities (NYSE or Nasdaq Securities) at 50% of transaction amount

• Deposit cash @ 1x Reg T Call
• Deposit stock @ 2x Reg T Call

-IPOS/mutual fund share new issues: have loan value after 30 days, loan value = 50% of mkt value

Question 2

Margin Acct Docs

Answer 2

1) New Account form
2) Credit agreement
2) Loan consent (B/D can loan out secs but customer can NOT agree to it)
3) Hypothecation Agreement
- customer hypothecates securities to B/D as collateral
- B/D borrows money from a bank to replace loan to customer (re-hypothecation)

Question 3

Long Margin Account

Answer 3

Long Market Value - Debit Balance = Equity

What does debit balance = ?

Question 4

SMA

Answer 4

50% of appreciation of stock / cap gains
100% of cash deposits (100% reduces debit)
50% of stock sales (100% of which reduces debit)
Buying power = 2x SMA
Its use increases the debit balance
SMA value ONLY changes if it is used. Even if market value drops.

Question 5

Short Margin Account

Answer 5

Credit Balance - Short Market Value = Equity
Credit Balance: Short sale proceeds PLUS Reg T. requirement on sale (customer must deposit 50% of short sale proceeds)
Short Market Value: Current mkt values of securities sold short

Question 6

Minimum Maintenance Requirement for Long Margin Account

Answer 6

Equity must be 25% of current LMV

Question 7

Restricted acccount

Answer 7

Equity is below initial Reg. T of 50% of LMV, account is “restricted” in name but doesn’t have to be remedied

Question 8

Minimum Maintenance Requirement for Short Margin Account

Answer 8

Equity must be 30% of SMV

Question 9

Minimum Initial Equity (aka new accts) for Long Accounts

Answer 9

Long Position: lesser of $2,000 or 100% of market value
Purchase below $2,000: Deposit 100% of purchase
Bt $2,000 and $4,000: $2,000
Above $4,000: 50% (Reg. T)

Question 10

Minimum Initial Equity (aka new accts) for Short Accounts

Answer 10

$2,000

Short sale below $4,000: Deposit $2,000
Deposit Above $4,000: 50% (Reg. T)

When shorting a stock below $5:
Greater of $2.50 per share or 100% of MV

Question 11

Margin Reqs on Options

Answer 11

Buy an option: Deposit 100% of premium
Sell a covered option: No required deposit on option
Sell uncovered option: margin required