margin accounts Flashcards Preview

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Flashcards in margin accounts Deck (35):
1

purpose of a margin account

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

2

who regulates the extension of credit in the securities industry?

federal reserve board

3

what are the eligible marginable securities?

-exchange listed
-OTC nasdaq issues

4

what are the noneligible marginable securities?

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

5

3 forms used for new margin accounts

-credit agreement
-hypothecation agreement
-consent to loan agreement

6

what is the credit agreement?

required document
-details all margin account requirements and obligations

7

what is the hypothecation agreement?

required document
-investor pledges collateral to broker

8

what is the consent to loan agreement?

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

9

two sides of regulation T

broker-dealer to customer

10

two sides of regulation U

bank to public or broker-dealer

11

regulation t is set by?

federal reserve

12

what percentage required for reg T?

50%

13

minimum maintenance requirement on long account?

25%

14

minimum maintenance requirement on short account?

30%

15

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

$2,000

16

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

the purchase price

17

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

$2,000

18

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

50% of purchase price

19

formula for calculating equity on long margin account?

long market value - debit = equity

20

formula for calculating equity on short margin account?

credit - short market value = equity

21

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

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

22

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

debit / .75

23

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

credit / 1.30

24

what happens to excess equity in a margin account?

equity is above reg T (50%)
-it credits memorandum account (SMA)

25

what happens if a margin account has a restricted status?

equity is below reg T (50%)

26

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

you must deposit 50% of new purchase

27

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

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

28

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

equity has fallen below minimum maintenance
-deposit cash (1 X call)
-deposits (2 X call)

29

SMA on account is increased by?

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

30

SMA on account is decreased by?

-cash withdrawals
-securities purchased

31

debit balance on margin account is increased by?

interest charges

32

debit balance on margin account is decreased by?

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

33

what is the buying power of SMA?

2 X SMA

34

what is the loan value of SMA?

1 X SMA

35

what is commingling?

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