Unit 6: Margin Accounts Flashcards
Through________ accounts, investors can borrow money from brokerage firms by pledging collateral
margin
The ____________regulates margin transactions
Federal Reserve Board
__________ are required to impose initial maintenance requirements on all margin accounts.
Broker-dealers
In this type of margin account, customers purchase securities and pay interest on the money borrowed until the loan is repaid
Long margin accounts
In this type of account, stock is borrowed and then sold short, enabling the customer to profit if its value declines.
Short margin accounts
Regulation T – customers must deposit a min of ______% of the market value of the transaction within five business days.
50%
Initial Requirements – the customer is required to deposit the greater of Regulation T requirement or the FINRA minimum. The exception occurs when the customer’s initial purchase is less than $2,000; the customer is not required to deposit $2,000, only _____________.
the full purchase price.
If the customer’s first purchase in a margin account is less than $2,000, deposit ________ of the purchase price.
100%
If the first purchase is between $2,000 - $4,000, deposit __________.
$2,000
If the first purchase is greater than $4,000, deposit ______%.
50%.
The practice of recalculating to check the status of the equity is the account is called _________.
marking to the market
Long margin accounting: when money is paid into a margin account, the debit balance is________, and the equity is_________.
decreased;
increased
In a Long Margin Account, Minimum Maintenance -s _____% of LMV
25%
When the market value of securities goes up or down, the ______ does not change.
Debit (DR)
The interest paid by margin customers on money borrowed is a variable rate based on the ______ ______ rate.
broker call rate
Regulation T applies to both cash and margin accounts; customers have _______ business days to pay for the purchase regardless of the account type. Firms, however, expect payment the regular way: within _____ business days of trading.
four;
two
If an account falls below minimum, a_____________ call will be sent in an amount sufficient to bring the account back up to minimum.
maintenance
A rule to determine SMA (Special Memorandum Account) is as follows: for every $___ increase in market value, $____of SMA is created. In the previous example, market value increased by $20,000, which created SMA of $10,000.
$1;
$.50
The amount of SMA in the account is equal to the greater of the _____ ______or the amount already in SMA.
excess equity
SMA may be more than excess equity and may exist even if there is no excess equity in the account. SMA is_______ power.
buying
If a customer wants to remove cash dividends coming into his margin account, he must do so within _____ days of receipt. Otherwise, the cash dividend will be applied against the debit balance, thereby increasing the equity in the account.
30
If securities are sold in a restricted account, which of the following are affected? LMV, DR, EQ, SMA?
All but equity are affected. LMV, DR, SMA. Equity is affected only if the customer elects to remove half of the proceeds.
The amount of equity that must be deposited to buy securities
Margin
Securities that can be used as collateral in a margin account.
Marginable
A demand that the customer make a payment to bring the account back to minimum.
Maintenance calls
If the equity in the account is less than the Regulation T amount but greater than or equal to the minimum maintenance requirement, the account is ________.
Restricted
A firm can impose a maintenance level higher than the FINRA minimum maintenance rule level, this is referred to as a ______ minimum.
House minimum
The amount of equity exceeding the Regulation T requirement is known as _______ equity.
Excess Equity
A term used when securities are purchased and then sold before making payment for the purchase.___________ is generally prohibited in both cash and margin accounts. As a penalty, the account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before the purchase is made.
Freeriding
The current market value of the stock position is either a ______ Market Value (LMV) or a _______ Market Value (SMV)
Long Market Value (LMV) or a Short Market Value (SMV)
The amount of money borrowed by the customer is added to the _____ on the T chart.
Debit Register (DR)
The amount of money in the customer’s account; equal to the sales proceeds plus margin deposit requirement is added to the _______ on the T chart.
Credit Register (CR)
The customer’s net worth in the margin account; it represents the portion of the securities the customer fully owns.
Equity (EQ)
A strategy an investor uses to profit from a decline in a stock’s price. Selling_______ must always be done through a margin account.
short
On a short margin account, CR-SMV=_____
EQ
On a short margin account, FINRA minimum maintenance requirement is ______ (compared to 25% on long position).
30%
What is the min initial dollar requirement in short margin
$2,000
What is the Reg T requirement in a short margin?
50%
The credit balance is the stock sales proceeds plus the_______ deposited.
equity
SMV + EQ
To find the maximum market value to which the short sale position can increase before a maintenance call is issued, apply the following formula: Total Credit Balance / ______. This is known as the short market value at maintenance.
1.3
For stock trading under $5 per share in a short account, a customer must maintain 100% SMV or ________per share, whichever is greater.
$2.50
For stock trading at $5 per share and above in a short account, the minimum requirement is $5 per share or ______%, whichever is greater.
30%
SMA in a long account will be affected by two things:
1) The______ of securities in the account
2) The_______ deposited by the customers
sale of a security in the account; the cash deposited by the customers
