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