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37 Cards in this Set
- Front
- Back
Regulation T does not apply to which 2 things?
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Purchases of $1,000 or less
Government securities |
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Describe a frozen account
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100% of cash is required for all purchases
The account is usually frozen for 90 days |
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If you want to sell stock short, you must have one of these. Also called a leverage account
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A margin account
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The margin in a customer account is what?
What percentage does REG T require? |
The amount the customer must deposit in the account.
Reg T requires the customer put up 50% |
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The amount of $ the brokerage lends the customer is called what?
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The loan value.
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The SMA most closely resembles a...?
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line of credit
Like a credit card |
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Marginable securities include..... but not.....
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Marginable securities include:
Registered securities -Securities listed and traded on the floor of an exchange. Exchange determines which of these are marginable. OTC Margin Securities -Federal Reserve Board chooses which of these are maginable And Exempt Securities - Government and municipal securities ===== But nonmarginable securities are called Unregistered securites. -These include any investment accompanied by a prospectus.New issues and open end investment co's |
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Non marginable securities can also be expressed as
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Securities with "no loan value"
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Name this agreement
When a customer agrees that a broker dealer can take securities from their account for loans CUSTOMER AND BROKER DEALER |
Hypothecation
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Name this agreement
When a brokerage firm deposits a customer's securities at a bank for collateral on a loan. BROKER/DEALER AND BANK |
Rehypothecation
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What percentage of the DEBIT BALANCE is the broker dealer allowed to pull out to use as collateral for the bank as part of the rehypothecation process?
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140% of debit balance, but the broker/dealer can not accept a loan cash amount of more than than the debit balance even if the bank is willing to loan more.
Remember two words. USE - 140% of debit balance Borrow - 140% of debit balance |
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The rate the B/D is charged from the bank is called
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Broker Loan Rate or Call Loan Rate
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If the FA has discretionary authority on an account and the customer wants to add margin capabilities...
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The FA must obtain a margin agreement AND supervisory approval before exercising discretion on the margin account
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Initial for Reg T Margin Requirement on a LONG account
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$2,000 min, / 50% after
If the purchase is for less than 2,000 of stock, you only have to pay 100% of the vale |
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Initial for Reg T Margin Requirement on a SHORT account
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2,000 min 50% after
no exceptions |
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Maintenance Requirement for Short Sale of LOW PRICED STOCK
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0 - 5 dollars per share
$2.50 per share or 100% of market value - whichever is greater. 5-17 dollars per share $5.00 is the required amount the investor needs to put up Greater than $17.00 per share 50% of the market value is the required deposit =============== 2,000 minimum still applies |
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Equity = ?
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Equity =
Current Market Value - Debit Balance |
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When a margin account long drops to below 50% equity, what happens?
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The account is restricted. This means that the account must abide by the federal retention rules. All sales that occur in the restricted margin account - 50% of the proceeds must be retained in the account to reduce the debit balance. The other 50% is released so the customer can do whatever with it.
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25% NYSE minimum maintenance requirement is?
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If the equity in a margin account long falls below 25%, a maintenance call happens and the customer must bring in money or stock. If they don't the brokerage will liquidate securities. The money/stock is due IMMEDIATELY.
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Determining the condition of a margin account long
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1) Look at the current mkt value of the account
2) Cut it in half 3) Compare to the debit balance of the account If Debit Balance < 1/2 market value ------ Excess Equity If Debit Balance = 1/2 market value --------- at REG T If Debit Balance > 1/2 market value --------- Restricted Acct |
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Excess Equity shortcut
(margin account long) |
Excess Equity = 1/2 of the market appreciation
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Excess equity in a margin long account gives how much buying power?
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2x buying power
twice as much as excess equity Buying power = 100% of appreciation |
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SMA can be increased by:
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- Appreciation of market value
- Cash deposits - CASH dividends (not stock) - Long sales of securities |
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SMA can be depleted by
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- Making new margin purchases
- Making cash withdrawals |
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Same day substitution
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If a customer wishes to replace a security in a restricted long margin account, he must do so at a dollar for dollar basis. If he wants to remove $10,000 worth of ABC, he must deposit $10,000 worth of DEF
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If a customer wants to replace a stock in a restricted margin account long
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He has to deposit 50% of the stock value in cash. If he wants to remove $10,000 worth of XYZ, he needs to deposit $5,000 cash.
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A short margin account never has a...?
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A debit balance.
The stable number in the short margin account is the credit balance. Since the B/D doesn't lend the client money, the B/D lends the client stock to sell |
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Minimum Maintenance for a SHORT margin account is what?
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30%
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On a short margin account, do customers pay or earn interest on credit balances?
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Trick question. There is no interest earned or charged on a short margin account.
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Equity in a short margin account is calculated by what formula?
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Short sale proceeds
+ Reg T deposit = Credit Balance Credit balance - CURRENT market value =Equity |
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Purchasing stock on a When Issued or "W I" basis
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Securities that a customer wants to buy that is physically not available yet. Ex. a stock that will be splitting in the near future. You want to buy the SPLIT shares... but you'll have to wait until that happens.
Right now you have to put a DEPOSIT down for those shares. The deposit is 25% or $2,000 of the market value. Whatever is greater. |
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Margin accounts are prohibited for ....?
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Minors
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Margin accounts for fiduciaries require what?
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Written authorization
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When a long sale is made, the value of this does not change. Only the percentage changes. What is this?
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Equity. EQUITY VALUE remains the same
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Standard or traditional options have no _____ ________ and can not be purchased on _________
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Standard options have no LOAN VALUE and can not be purchased on MARGIN
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Minimum maintenance on municipal bonds is?
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15% of market value or 7 % of principal. Whichever is greater
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Unless an extension of time is granted, a customer must be "bought in" if he does not deliver securities which he sold long for his account within how many business days after the settlement date?
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The customer is allowed 10 business days after settlement date to deliver securities before he will be bought in.
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