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.
