margin accounts

Question 1

purpose of a margin account

Answer 1

it allows an investor to use some cash and some credit to purchase securities

Question 2

who regulates the extension of credit in the securities industry?

Answer 2

federal reserve board

Question 3

what are the eligible marginable securities?

Answer 3

• exchange listed

- OTC nasdaq issues

Question 4

what are the noneligible marginable securities?

Answer 4

• OTC non-nasdaq issues
• new issues for first 30 days
• options contracts

Question 5

3 forms used for new margin accounts

Answer 5

• credit agreement
• hypothecation agreement
• consent to loan agreement

Question 6

what is the credit agreement?

Answer 6

required document

-details all margin account requirements and obligations

Question 7

what is the hypothecation agreement?

Answer 7

required document

-investor pledges collateral to broker

Question 8

what is the consent to loan agreement?

Answer 8

optional document

-allows broker-dealer to lend customer securities to other customers

Question 9

two sides of regulation T

Answer 9

broker-dealer to customer

Question 10

two sides of regulation U

Answer 10

bank to public or broker-dealer

Question 11

regulation t is set by?

Answer 11

federal reserve

Question 12

what percentage required for reg T?

Answer 12

50%

Question 13

minimum maintenance requirement on long account?

Answer 13

25%

Question 14

minimum maintenance requirement on short account?

Answer 14

30%

Question 15

to borrow on a margin account, what is the minimum amount of equity required?

Answer 15

$2,000

Question 16

purchase price is less than $2,000, what is required deposit?

Answer 16

the purchase price

Question 17

purchase price is between $2,000-$4,000, what is required deposit?

Answer 17

$2,000

Question 18

purchase price is greater than $4,000, what is the required deposit?

Answer 18

50% of purchase price

Question 19

formula for calculating equity on long margin account?

Answer 19

long market value - debit = equity

Question 20

formula for calculating equity on short margin account?

Answer 20

credit - short market value = equity

Question 21

formula for calculating equity on combined short and long margin account?

Answer 21

long market value - debit + credit - short market value = equity

Question 22

what is the formula for calculating how low a long margin value can fall before a maintenance call?

Answer 22

debit / .75

Question 23

what is the formula for calculating how low a short margin value can fall before a maintenance call?

Answer 23

credit / 1.30

Question 24

what happens to excess equity in a margin account?

Answer 24

equity is above reg T (50%)

-it credits memorandum account (SMA)

Question 25

what happens if a margin account has a restricted status?

Answer 25

equity is below reg T (50%)

Question 26

if an account is restricted, how can you buy more securities?

Answer 26

you must deposit 50% of new purchase

Question 27

if an account is restricted, what happens if you want to sell securities?

Answer 27

if you want to sell in a restricted account, only 50% of sale proceeds can be withdrawn.

Question 28

what happens if there is a maintenance call on a margin account?

Answer 28

equity has fallen below minimum maintenance

• deposit cash (1 X call)
• deposits (2 X call)

Question 29

SMA on account is increased by?

Answer 29

• excess equity
• non required deposits
• sale of stock in restricted account (50% of proceeds credit SMA)
• if dividends pay interest to account

Question 30

SMA on account is decreased by?

Answer 30

• cash withdrawals

- securities purchased

Question 31

debit balance on margin account is increased by?

Answer 31

interest charges

Question 32

debit balance on margin account is decreased by?

Answer 32

• dividends paid on stock
• interest received on bonds
• sales proceeds

Question 33

what is the buying power of SMA?

Answer 33

2 X SMA

Question 34

what is the loan value of SMA?

Answer 34

1 X SMA

Question 35

what is commingling?

Answer 35

mixing a customers securities in with accounts of the broker/dealer… not allowed