Securities 5 Flashcards
Qualified Retirement Plan
IRS approval required Contributions tax deductible Plan cannot discriminate Tax on accumulation is deferred All withdrawals taxed Plan is set up with trustee
Nonqualified Retirement Plan
No IRA approval needed
Contributions not tax deductible
Plan may allow only certain employees to participate
Tax on accumulation may be deferred
Only excess over cost basis is taxed at time of withdrawal
No plan trustee required
Qualified Plans
IRA SEP Keogh Plans Tax sheltered annuities (403b and 501c3) SIMPLEs 401k for traditional and roth
Nonqualified plans
payroll deduction
deferred compensation
Regulation T
50% initial margin
Set by the Federal Reserve
Long account
Long market value - debit = equity
Short account
Credit - short market value = equity
Combined account
LMV - Dr + Cr - SMV = equity
Min Maintenance Long Account, 25%
Debit/(1-.25)
Min Maintenance Short Account, 30%
Credit/(1+.30)
Special Memorandum Account (SMA)
Applicable to long accounts
Line of credit for future purchases or loans
Buying power = 2 * SMA
Loan value= 1 * SMA
Generated by: increase in market value, non-required deposit, sale of stock (50% to SMA), dividends, or interest
Decreased by: purchase of securities, cash withdrawal
Market value increases, add to SMA.
Market value decreases, SMA stays the same.
Credit agreement
Required
Truth in lending document
details all margin account requirements and obligations
Hypothecation agreement
Required
Investor pledges collateral (securities) to broker/dealer
Loan consent
Optional
Allows Broker/dealer to lend customer securities to other customers
Exchange
Listed
Physical location
***Auction market
OTC
Unlisted
no physical location
***negotiated market
Third market
Listed, traded OTC
No physical location
***negotiated market
Fourth market
Listed and unlisted
Direct trading between financial institutions
use electronic communication networks (ECNs)
Day orders
Cancel any unexecuted portion at end of day
Good till canceled (GTC)
Any unexecuted portion remains working until the last trading day of April or October
Buy limit
Entered below CMV
Buy at limit price or better (lower)
Execution not guaranteed
Sell Limit
Entered above CMV
Sell at limit price or better (higher)
Execution not guaranteed
Buy stop
Entered above CMV
triggered at or above stop price
execute immediately at next available price
buy stop limit
Entered above CMV
triggered at or above stop price
execute at limit price or better (lower)
execution not guaranteed
Sell stop
Entered below CMV
triggered at or below stop price
execute immediately at next available price
Sell stop limit
Entered below CMV
triggered at or below stop price
execute at limit price or better (higher)
execution not guaranteed
