Equity Accounts

Question 1

Minimum maintenance in short margin account

Answer 1

30% SMV

Minimum in a short margin account is 30% of the current market value

Question 2

A BD can rehypothicate up to __% of the debit balance of a customers account

Answer 2

140%

Question 3

T/F: Reg T applies to both cash and margin accounts for non exempt securities

Answer 3

True

Regulation T controls the credit that broker-dealers extend in all types of accounts and only applies to nonexempt securities.

Question 4

What are buy stops typically used for?

Answer 4

Protect short stock position

Order is entered at a price above the current market (the short seller is hoping the price will fall), but if the price rises, the stop will be triggered

Question 5

Whenever stock is sold, __% of the sales proceeds are credited to the SMA account

Answer 5

50%

Whenever stock is sold, half of the sales proceeds are credited to SMA.

(Nonrequired cash deposits are credited to SMA in full)

Question 6

Only two things that decrease SMA

Answer 6

SMA will only decrease when:

1) Securities are bought
2) Cash is withdrawn

Question 7

Minimum maintenance for long margin account

Answer 7

25%

Min maintenance in long margin account is 25% LMV

Question 8

Is SMA decreased by the purchase of securities?

Answer 8

Yes

SMA decreases with purchase of securities or cash withdrawal

Question 9

Does SMA decrease with cash withdrawal?

Answer 9

Yes

SMA decreases with purchase of securities or cash withdrawal

Question 10

T/F: Initial margin is 50% whether in a long or short account

Answer 10

True

Initial margin 50%

Question 11

Is SMA applicable to long or short accounts

Answer 11

Long accounts

Question 12

Buying power = ____% of SMA

Answer 12

200%

Buying power is always twice the SMA balance

Question 13

5 things that increase SMA

Answer 13

1. Increase in market value
2. Non required deposit
3. Sale of stock (50% to SMA)
4. Dividends
5. Interest

Question 14

2 things that decrease SMA

Answer 14

1. Purchase of securities

2. Cash withdrawal

Question 15

In a margin account, is the loan consent agreement required? (Allows BD to lend securities to other customers)

Answer 15

No, it’s optional

Credit agreement and hypothecation agreement are the required ones

Question 16

If someone with a margin account wants to purchase stock worth $500, how much must he deposit?

Answer 16

$500

If purchasing less than $2k of securities, must deposit entire amount

Question 17

All or none (AON) order

Answer 17

• Execute all if available

* If can’t execute entire order, hold order as GTC

Question 18

Order type: Market at Open

Answer 18

• Execute at or near open of the day

* Not guaranteed exact opening price

Question 19

Formula for long market value at maintenance

Answer 19

Debit balance / 0.75

Example: Account has market value of $190k and debit balance of $90k and SMA of $5k.

$90k / 0.75 = $120k
LMV at maintenance = $120k

Question 20

Formula for equity in long account

Answer 20

EQ = Market value - Debit balance

•Not 100% sure tho lol

Question 21

What happens if you can’t execute an all or non (AON) order in its entirety?

Answer 21

It becomes a GTC order

Question 22

All of the following will affect special memorandum account (SMA) in a short account except

A)
the purchase of securities.
B)
the sale of securities.
C)
a decline in CMV.
D)
appreciation of CMV.

Answer 22

D) appreciation of CMV.

> It’s a short margin account

“In a short account, the customer benefits if the current market value (CMV) falls. If the CMV is falling, the equity is increasing, thus increasing SMA. If the CMV is rising, the equity is falling, with no effect on SMA.”

Question 23

T/F: Buying power is also referred to as ___

Answer 23

Excess equity

“Buying power, also referred to as excess equity, is the money an investor has available to buy securities”

Question 24

Another name for excess equity is ____ power

Answer 24

Buying power

Buying power also referred to as excess equity

Question 25

Will A cash dividend on stock held long in the account effect SMA?

Answer 25

Yes, cash dividend affect SMA

“cash dividend means that new money is coming into the account, which will reduce the debit balance and be credited to SMA so the customer may withdraw the dividend, if desired.”

Question 26

T/F: A cash dividend means that new money is coming into the account, which will reduce the debit balance and be credited to SMA so the customer may withdraw the dividend, if desired.

Answer 26

True

> reduce debit balance
credit SMA

Question 27

A customer sells $5,000 worth of a security in a cash account and on the same day purchases $8,000 worth of a different security in the same account. At the close of the fourth business day following these transactions, no payment has been received from the customer and no extension has been obtained. Assuming no change in market value, the firm must

A)
liquidate $5,000 of securities and freeze the account for 90 days.
B)
liquidate the $8,000 transaction and freeze the account for 90 days.
C)
cancel both the purchase and the sale and freeze the account for 90 days.
D)
liquidate $3,000 of securities and freeze the account for 90 days.

Answer 27

D) liquidate $3k, freeze acct for 90 days

“When an investor buys and sells different securities in the same account on the same day, the two transactions can be netted against each other to determine whether money is due to the client or the client owes money to the firm.

In this question the client owes the firm $3,000 (an $8,000 purchase netted against a $5,000 sale). According to Regulation T, the investor has two additional business days after settlement (four days total) to pay the amount owed. Because he has failed to do so and no extension has been obtained, the unpaid-for portion of the trade, which is $3,000, will be liquidated and, according to Regulation T, the account will be frozen for 90 days.”

Question 28

T/F: Unless the customer has given DNR (do not reduce) instructions, open buy limit orders and open sell stop orders are reduced on the ex-dividend date by the amount of the dividend.

Answer 28

True

Buy limits and sell stops reduced on ex-dividend date

Question 29

When there a dividend and buy limit and sell stop orders get reduced, when does this occur?

Answer 29

On the ex dividend date

Question 30

If an investor opens a new margin account and buys 100 shares of DWQ at 18, with Regulation T at 50%, what is the investor’s initial margin requirement?

A)
$900
 B)
$3,600
 C)
$1,800
 D)
$2,000

Answer 30

C) $1,800

If the initial transaction is less than $2,000, the investor must deposit 100% of the market value.

Question 31

What happens if a customer with a margin account does not withdraw a cash dividend within 30 days of receipt?

Answer 31

It becomes a permanent reduction of the debit balance

> The customer does not lose the dividend; rather, the dividend amount is now reflected as increased equity in the account.

Question 32

What happens if all of none order is not executed?

Answer 32

Held as good till close

> might want to double check that