Margin account Flashcards
(22 cards)
Exempt Securities Regulation T
US Treasury securities, Government agencies issues, muni securiites
Initial margin requirement in a margin account for first purchase
< $2,000 purchase: 100% purchase price $2,000 to $4,000 purchase: $2,000 >$4,000 purchase: 50% purchase deposit Exception. Short margin account if
Deadline to meeting margin requirments
4 biz days after trade date
Deposit made either in cash or in fully paid securities valued at twice amount of Reg T cash call
BD may apple for extension with DEA. If
Long margin accounting
LMV - DR = EQ
DR Does Not change. Note can solve for DR
Long Regulation T (minimum deposit)
50% of LMV
4 biz days
Applies to cash and margin account
Reg T applies to all non exempt securities in cash and margin account
For spreads, Reg T require deposit max loss
Long minimum maintenance margin
25% of LMV
Formula is DR / .75
Excess Equity (EE) Long
Amount of equity exceeding regulation T requirement
SMA
Greater of the EE or amount already in the SMA
Additional line of credit
Can’t be use to meet minimum maintenance requirements
Buying power is 2:1
Can meet Reg T requirements for purchase
When securities are sold in a restricted account, 50% of the proceeds are credited to SMA. In other words, the customer is permitted to remove 50% of the proceeds from the account, but the balance must remain in the account to reduce the debit balance.
In long margin account, long sale would increase SMA
An increase in market value or a sale of stock increases SMA. The purchase of stock decreases available SMA.
Approval for Trading account
Must provide customer risk disclosure
Approve account for day trading or written statement from customer does not intend to engage in day tradeing
Short accounting
CR - SMV = EQ (CR Does not change)
Customer Portfolio margining (CPM)
Net risk of entire portfolio of securities
Margin requirements generally lower than conventional methods
Buying power
EE*2
discretionary account
A principal must accept the account in writing.
B)
A principal must review all account activity frequently
A principal must review all trades in the account promptly after execution.
Can be cash or margin account
Penalty for freeriding
Selling prior to paying is termed freeriding and is prohibited. The penalty for freeriding in a cash account is that the account will be frozen for 90 days, and orders will not be accepted without cash or securities on deposit in advance. Transactions in margin accounts are subject to the same basic rule.
Margin interest
Tax deductible
Exception for muni bond b/c already tax exempt on federal level
Variable broker call rate paid
Buying options
(other than Leaps)- Cannot be purchased on margins
Must deposit 100% of premium
If writing covered call, no reg T requirement
Required deposit 50% stock -premium (reg T requirement minus premium)
Cash account Reg T requirement is 100%
In margin account if buy stock and buy option, deposit 50% of purchase price of stock and 100% of premium
LEAPS
> 9 months can be purchased on margin
Initial and maintenace margin is 75%
When time reaches 9 months, require 100% of CMV
How to meet margin calls
Deposit must be made in cash or fully marginable securities that are valued at twice the cash reg T call
Failure to meet fed call
If a customer does not meet a Fed call, the firm can use existing SMA to meet the call, request an extension of time from its designated examining authority, or liquidate the unpaid portion. The firm would not close out the account.
Margin account
Credit agreement, hypothecation agreement and loan consent form (not mandatory)
Cash vs. margin account signatures
Remember, when a customer opens a cash account, the only signatures that are required are that of the registered rep and a principal of the firm. However, if a customer were to open up a margin account, she’d have to sign a margin agreement.
Rice, Steven M.. Series 7 Exam For Dummies (For Dummies (Business & Personal Finance)) (p. 368). Wiley. Kindle Edition.
Requirement to short stocks
The industry requirement to short stocks below $5 per share is 100% of market value or $2.50 per share (whichever is greater).
