Unit 23 Flashcards
Trading Securities
4 accounts that can only be opened as cash accounts
- Personal retirement accounts, such as IRAs
- Corporate retirement accounts;
- Custodial accounts, such as Uniform Transfer to Minors Act accounts (UTMAs)
- Coverdell ESAs
Regulation that identifies which securities are eligible for purchase on margin
Regulation T
3 types of securities that may be purchased on margin
- Exchange-listed stocks and bonds
- Stocks traded on the Nasdaq Stock Market
- Warrants
3 securities that cannot be purchase on margin
- Options
- Preemptive stock rights
- Insurance contracts, e.g., variable annuities and variable life
Can be used as margin collateral after 30 days of ownership
Mutual funds
3 Margin Account Agreements
- Credit Agreement
- Hypothecation Agreement
- Loan Consent
What credit agreement does
Discloses terms under which credit is extended, including use of securities as collateral for the margin loan
Hypothecation agreement
Gives the firm permission to pledge (hypothecate) securities held on margin to a lending institution
Agreement that is optional
Loan consent (Gives firm permission to lend securities in the margin account to other brokers)
Broker call loanrate
Interest rate banks charge broker-dealers on money they borrow to lend to margin account customers
When maintenance margin call would be sent
When customer equity in account drops below 25% of the total
Can firms sell any security from a client portfolio if a maintenance call is not filled by client?
Yes, even if it was different than the one that dropped
Difference between minimum maintenance and house maintenance
Minimum maintenance set by SROs, House maintenance set by individual broker dealers
Long equity equation
CMV long – debit balance = long equity
Short equity equation
Credit balance – CMV short = short equity
Two big SEC Powers
- Suspend trading in any nonexempt security for up to 10 days without prior notice
- Suspend trading on an entire exchange for up to 90 days (in order to do this, the SEC must give prior notification to the president of the United States)
How many stock exchanges are listed as national stock exchanges
21
What designated market makers (DMM), in an exchange market do
Fill limit and market orders for the public and trades for his own account to either stabilize or facilitate trading when imbalances in supply and demand occur
How OTC market is priced
Interdealer network, in other words, prices are negotiated
Market-makers
Broker-dealers who stand ready to buy and sell at least the minimum trading unit, usually 100 shares
Who regulates OTC
FINRA
Who regulates listed stock exchanges
NYSE
How NYSE market is priced
Determined by auction
Broker capacity of a broker dealer
Facilitate trades between buyers and sellers and charge a commission
Dealer capacity of a broker dealer
Selling security out of their inventory
Ways dealer differs from broker (2)
- Charge markup instead of commission
- Makes markets
BAC/DPP
Brokers act as Agents for Commissions/Dealers act as Principals for Profits
Whenever a trade is made without a commission indicated on the confirmation, what does it mean
Markup/markdown was charged
Bid price
- What broker-dealer buys at
- What investor recieves
Ask price
- What broker-dealer sells at
- What investor pays
Two items not on an order ticket
- Current market price of the security
- Client’s name or address
A stop limit order
Order that, once triggered, becomes a limit order instead of a market order
What Buy Stop Orders do (2)
Protect against loss/ protect gain from a short stock position
What Sell Stop Orders do (2)
Protect against loss/ protect gain from a long stock
A dark pool would most likely be used by
An institution
Pegging
Manipulating the market by entering buy orders for the purpose of supporting a stock price
Regulation T call
Original call for funds
When comparing a clearing firm to an introducing firm, it would be expected that
The clearing firm has higher financial requirements
What term used to describe a person on the floor of a stock exchange who stands ready to buy or sell shares of specified stocks?
Specialist
What contra party is
Person on the other side of the trade
Can an investment adviser charges two customers two different fees for a similar service?
Yes
What is true about thinly traded stocks on the OTC market
Bid-ask price is likely to be larger than normal
Minimum in a block trade
$10,000
What a narrow bid-ask price means
More active trading volume in a stock
