Series 7 STC Margin (Ch. 18) Flashcards
A margin account is restricted if the:
Equity is equal to 50% of the market value
Equity is less than 50% of the market value
Equity is greater than 50% of the market value
Equity is greater than the minimum maintenance requirement
Equity is less than 50% of the market value
All of the following securities are eligible for purchase on margin, EXCEPT:
OTC equities
Exchange-listed ETFs
NASDAQ-listed securities
Exchange-listed stocks
OTC equities
The FRB determines the list of marginable securities which includes exchange-listed securities (including ETFs) and NASDAQ-listed securities. However, the list doesn’t include OTC equities.
As an initial transaction, a client sold short $1,500 of securities. The minimum amount that the client must deposit is:
$750
$1,500
$2,000
$3,000
$2,000
In the first (initial) transaction in a short margin account, the client must deposit the greater of $2,000 or the required Reg. T deposit. In this case, to sell short $1,500 of securities, the client must deposit $2,000 (since it exceeds 50% of the short sale, or $750).
In the first (initial) transaction in a short margin account, the client must deposit the greater of $_____ or the required Reg. T deposit.
$2,000
Which of the following statements is TRUE if a customer’s margin account is currently restricted, but he wants to purchase stock?
No purchases can be made in a restricted margin account.
100% of the purchase price must be deposited.
50% of the purchase price must be deposited.
25% of the purchase price must be deposited.
50% of the purchase price must be deposited.
When purchasing stock in a restricted account, Reg. T on the purchase must be satisfied. In other words, the customer must deposit 50% of the purchase. An account being restricted sounds bad; however, in reality, it simply means that the account has equity that’s less than 50% of the long market value. A problem exists if the equity falls below 25% of the long market value.
In a short margin account, assuming no additional transactions are executed, the credit balance:
Remains the same
Increases as the equity increases
Decreases as the equity decreases
Increases as the short market value increases
Remains the same
Once a short position is established and no additional transactions are executed in a short margin account, the credit balance remains the same. However, as the short market value changes, the equity changes in an opposite direction.
To be considered a pattern day trader, a customer must execute how many day trades over a five-business-day period?
One
Two
Three
Four
Four
Before a firm may lend one customer’s securities to another customer, the customer must sign a:
Credit agreement
Hypothecation agreement
Loan consent agreement
Margin agreement
Loan Consent Agreement
If a margin customer signs a loan consent agreement, she’s allowing her broker-dealer to lend the securities purchased to another customer, generally to facilitate a short sale.
In a short margin account, the minimum maintenance level is:
25% of the credit balance
30% of the credit balance
25% of the short market value
30% of the short market value
30% of the short market value
Which of the following documents allows the broker-dealer to use the securities purchased in a customer’s margin account as collateral for a loan?
Credit agreement
Hypothecation agreement
Loan consent agreement
Margin agreement
Hypothecation agreement
By signing the hypothecation agreement of a margin account, a customer is allowing the broker-dealer to use the securities purchased on margin as collateral to borrow funds from a bank.
Securities that are purchased in either a cash or margin account must be paid for by no later than:
The same business day as the trade (T+0)
One business days after the trade (T+1) (S+0)
Two business days after the trade (T+2) (S+1)
Three business days after the trade (T+3) (S+2)
Three business days after the trade (T+3) (S+2)
According to Regulation T, securities that are purchased in either a cash or margin account must be paid for by no later than two business days after the settlement date (i.e., S + 2), or, put another way, payment is required to be made by no later than three business days after the trade date (i.e., T + 3).
As the initial transaction in a margin account, a client purchases $3,000 of securities. What amount must the client deposit?
$1,500
$2,000
$2,500
$3,000
$2,000
In the first (initial) transaction in a long margin account, the client must deposit a minimum of $2,000 before the broker-dealer can extend credit. In this case, the customer must deposit $2,000 and the broker-dealer can lend the remaining $1,000.
Which of the following is TRUE for a long margin account with an equity balance that’s below its minimum maintenance level?
A maintenance call must be met promptly and SMA can be used to meet the call.
A maintenance call must be met promptly and SMA cannot be used to meet the call.
A maintenance call must be met within two business days and SMA can be used to meet the call.
A maintenance call must be met within two business days and SMA cannot be used to meet the call.
A maintenance call must be met promptly and SMA cannot be used to meet the call.
If a long margin account’s equity falls below the minimum maintenance level (i.e., 25%), a maintenance call will be issued and the call must be met promptly, but SMA cannot be used. In an account in which the equity is below the minimum maintenance level, any SMA is referred to as phantom SMA (i.e., it still exists, but cannot be used).
What’s the minimum maintenance requirement for a $600,000 short position of a 2x Inverse SPX Index ETF?
$180,000
$300,000
$360,000
$540,000
$360,000
The minimum maintenance level for a leveraged short ETF is the leverage factor multiplied by 30%. In this question, the answer is 60% (2 x 30%), which results in a $360,000 requirement.
The minimum maintenance level for a SMV account is ____%
30%
The minimum maintenance level for an LMV account is _____%
25%
When securities are purchased on margin, a Reg. T margin call of what percentage is required to be deposited?
25%
30%
50%
100%
50%
When securities are purchased on margin, a Reg. T call of 50% must be satisfied.
In a day trading account, the minimum equity requirement is:
25%
30%
$2,000
$25,000
$25,000
Pattern day traders have a minimum equity requirement of $25,000 that must be deposited before day trading may begin.
In a short account, the total amount of money that’s deposited into the account is referred to as the:
Equity
Debit balance
Credit balance
Short market value
Credit balance
The total amount of money deposited into a short margin account is referred to as the credit balance. The credit balance equals the proceeds of the short sale and the client’s margin deposit.
T/F. In a short margin account, the credit balance = proceeds of the short sale + client’s margin deposit.
True
The minimum maintenance level for a 2x long ETF is:
25%
30%
50%
60%
50% (2 x 25%)
The minimum maintenance level for a leveraged long ETF is the leverage factor multiplied by 25%. In this question, the answer is 50% (2 x 25%).
Cash dividends that are paid on stock that’s held in a margin account will result in a(n):
Increase in the debit balance and an increase in the SMA
Decrease in the debit balance and a decrease in the SMA
Increase in the debit balance and a decrease in the SMA
Decrease in the debit balance and an increase in the SMA
Decrease in the debit balance and an increase in the SMA
Cash dividends that are paid on stock that’s held in a margin account will result in a decrease in the debit balance and an increase in the SMA. The funds are first used to pay down the debit balance and then the same amount will show as a line of credit in the SMA.
In a margin account, the amount that a customer owes to the broker-dealer is the:
Equity
Debit Balance
Long Market Value
Credit Balance
Debit Balance
An operations professional is an employee of a broker-dealer who works:
On the trading floor
On the institutional desk
In the investment banking department
In the back office
In the back office
An operations professional is an employee of a broker-dealer who works in the back office. The critical functions of an operations professional include customer onboarding, financial control, receipt and delivery of securities and funds, account transfers, and collection, maintenance, reinvestment, and disbursements of funds.
As an initial transaction, a client sold short $1,500 of securities. The minimum amount that the client must deposit is:
$750
$1,500
$2,000
$3,000
$2,000
In the first (initial) transaction in a short margin account, the client must deposit the greater of $2,000 or the required Reg. T deposit. In this case, to sell short $1,500 of securities, the client must deposit $2,000 (since it exceeds 50% of the short sale, or $750).
As the initial transaction in a margin account, a client purchases $3,000 of securities. What amount must the client deposit?
$1,500
$2,000
$2,500
$3,000
$2,000
In the first (initial) transaction in a long margin account, the client must deposit a minimum of $2,000 before the broker-dealer can extend credit. In this case, the customer must deposit $2,000 and the broker-dealer can lend the remaining $1,000.
Portfolio-based margin accounts are allowed for:
Any retail client
Any person who has been approved to engage in uncovered option contracts
Only institutions
Only broker-dealers
Any person who has been approved to engage in uncovered option contracts
Portfolio-based margin accounts can be opened by any person who has been approved to engage in uncovered option contracts. Portfolio-based margin is based on a more sophisticated evaluation of a client’s position and the overall net risk of the client’s entire portfolio.
T/F. Portfolio-based margin is based on a more sophisticated evaluation of a client’s position and the overall net risk of the client’s entire portfolio.
True
If an individual wants to purchase $40,000 of securities in a margin account, what amount of cash is he required to deposit?
$10,000
$20,000
$30,000
$40,000
$20,000
To purchase $40,000 of securities in a margin account, a customer is required to deposit cash of $20,000 ($40,000 x 50%).
Which of the following regulates the extension of credit by broker-dealers regarding the purchase of securities?
Securities Exchange Act of 1934
Securities Act of 1933
FINRA
FRB
FRB (federal reserve board)
The Securities Exchange Act of 1934 granted the Federal Reserve Board (FRB) with the power to regulate borrowing and it does so through Regulation T. Regulation T governs the extension of credit by broker-dealers.
What’s the maximum amount that a broker-dealer may lend to a customer who purchases $30,000 of securities on margin?
$3,000
$10,000
$15,000
$30,000
$15,000
When securities are purchased on margin, a customer must deposit 50% of the market value, which allows the broker-dealer to loan the balance (50%) to the customer. This amount is referred to as the loan value and equals $15,000 on a $30,000 purchase ($30,000 x 50%).
A margin account has excess equity if the:
Equity is equal to 50% of the market value
Equity is less than 50% of the market value
Equity is greater than 50% of the market value
Equity is greater than the minimum maintenance requirement
Equity is greater than 50% of the market value
In a margin account, excess equity exists if the equity is greater than 50% of the market value. Excess equity is recorded in the Special Memorandum Account (SMA).
If a margin account in good standing has $8,000 of SMA, what amount of marginable stock could the customer purchase without depositing any money?
$0
$4,000
$8,000
$16,000
$16,000
If a customer’s account is in good standing and there’s $8,000 of SMA, the customer could purchase $16,000 of securities without depositing any money. The use of the SMA balance is referred to as buying power. Since SMA is a line of credit and the customer doesn’t deposit any funds, the customer’s debit balance would increase by the full amount of the purchase.
In a combined margin account, the formula for calculating the total equity is:
LMV + SMV - DR - CR
LMV + CR - SMV - DR
LMV + DR - CR - SMV
CR + DR - LMV - SMV
LMV + CR - SMV - DR
The formula for calculating the total equity in a combined or mixed margin account is LMV + CR - SMV - DR.
Each of the following statements is TRUE regarding portfolio-based margin, EXCEPT:
Long and short positions are evaluated separately.
Portfolio-based margin permits clients to use a greater amount of leverage.
A goal of portfolio-based margin is to reduce margin calls.
The required margin is generally based on the greatest loss that may occur in a portfolio.
Long and short positions are evaluated separately
Portfolio-based margin calculates the amount required based on the net risks in the customer’s account and doesn’t evaluate long and short positions separately. Portfolio-based margin does permit greater leverage and has a goal of reducing margin calls.
Which of the following are true regarding Portfolio-based margin accounts?
I. Portfolio-based margin calculates the amount required based on the net risks in the customer’s account
II. They don’t evaluate long and short positions separately
III. They permit greater leverage
IV. A goal is reducing margin calls
All are true
Portfolio-based margin calculates the amount required based on the net risks in the customer’s account and doesn’t evaluate long and short positions separately. Portfolio-based margin does permit greater leverage and has a goal of reducing margin calls.
If an investor purchases and sells the same securities on the same day in a restricted account, it’s referred to as a(n):
Same-day substitution
Net trade
Cross trade
Exchange trade
Same-day substitution
If an investor purchases and sells the same securities on the same day in a restricted account, it’s referred to as a same-day substitution.
In a margin account, a client’s value is represented by the:
Equity
Debit Balance
Long Market Value
Credit Balance
Equity
In a long or short margin account, a client’s value is represented by the equity.
In a short account, the total amount of money that’s deposited into the account is referred to as the:
Equity
Debit balance
Credit balance
Short market value
Credit balance
The total amount of money deposited into a short margin account is referred to as the credit balance. The credit balance equals the proceeds of the short sale and the client’s margin deposit.
