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Series 7 > Margin > Flashcards

Flashcards in Margin Deck (24):
1

Long account equation

Current mkt value - debit balance = equity

CMV - DR = EQ

DR - amount loaned to customer

2

Reg T

Determines the amount of EQ investor must deposit to pay for a security trade in a margin account

Usually 50%

Options are not marginable, must deposit full premium

3

Difference between margin call and DR

Margin call is the equity or reserve requirement for margin whereas the DR represents the other side of reg t, the amount borrowed

4

Impact of upward stock price movement on DR

None, you still borrowed the same amount

It's the EQ that moves up

5

SMA

Special memo acct

Represents the extra EQ you get when a stock price moves up

The difference btwn the new EQ positions - LESS THE NEW REG T REQUIREMENT OF THE NEW MKT VALUE

Can be withdrawn
Can be used to reduce margin when buying more stock

Can't lose it till you use it
Cannot be used to lower the DR

6

SMA buying power

SMA/reg t = buying power

, or the amount of securities the investor could buy w/o sending any more money

7

Restricted acct

When stock price moves down on margin acct below the reg t requirement

8

When must maintenance calls be met?

On demand (promptly not immediately) issued at the close of mkt, brokerage determines
No extensions are allowed

5 biz days after trade date

9

Minimum maintenance

Minimum EQ = 25% of CMV

10

Minimum CMV decline (long)

4 x DR/3

11

Failure to meet maintenance call

The firm must sell out securities 4 times the amount of the call from the margin acct

12

Impact of inflows or outflow on margin account

If money comes in DR decreases
If money goes out (or investor owes more money) DR increases

CMV-dr=EQ

13

Minimum long margin deposit

2k
Or pay for the trade in full

14

Day trading

When must disclosure stmt be sent?

Prior to the opening of non institutional accts

Requires principal approval

15

Minimum equity requirement for day traders?

25k

(Vs 2k for normal)

16

Nature of margin agreement

Document signed due to additional risk, must be done before any transactions

3 parts
1. Credit agreement - sets the terms of the loan
2. Hypothecation - b/d loans money to investor for purchase of securities on margin, held in street name
3. Loan consent - optional, allows firm to loan securities to a short seller

17

Short accounts
Margin equation

CMV+EQ=CR

Now the customer is borrowing securities instead of cash

Reg t is still 50%

When CMV value changes CR stays the same, new SMA is the difference between the new EQ and the new reg t

18

Maintenance requirement for short acct

30% of CMV

Vs 25% for long

19

Reg U

Using securities as collateral to borrow money from the bank

20

Reg G

Using securities to borrow money from another financial institution besides b/d or bank

21

Reg X

Regulates foreign lenders of US investors who trade securities

Overseas lenders are still subject to Reg's T U or G

22

Margin required for options

100%

Options must be paid for in full

23

Maximum CMV increase (short)

10xCR/13

24

What can be used as collateral in a margin account

Bonds stocks mf

Not options