Vocab Flashcards
(30 cards)
credit agreement
discloses the term of the credit extended by the broker-dealer, including the method of interest computation and situations under which interest rates may change.
Regulation U
oversees the process when a bank lends money to a broker-dealer based on customer securities that have been pledged as collateral.
hypothecation agreement
gives permission to the broker-dealer to pledge customer margin securities as collateral.
freeriding violation
exists when securities are purchased and then sold without making payment for the purchase on settlement date.Freeriding is generally prohibited in both cash and margin accounts. As a penalty, the account will be frozen for 90 days, and no new transactions can occur unless there is cash or marginable securities in the account before the purchase is made.
marking to the market
The practice of recalculating to check the status of the equity in the account.
It is typically done every business day on the basis of the closing price of the stock.
Long market value (LMV)
The current market value of the stock position the investor purchased.
debt register
the amount of money borrowed by the customer.
Equity
The customer’s net worth in the margin account; it represents the portion of
the securities the customer fully owns.
Regulation T
the Federal Reserve Board regulation that governs customer cash accounts & the amant of credit that brokerage firms & dealers may extend to customers for the purchase of scarities.
Regutation T currently sets the loan value or marginable secunties at 50% & the payment deadline at 2 days beyond reguar way setlement.
Liquidity
It measures the speed or case of converting an investment into cash without causing a price disruption.
Regulation SHO
mandates that the short seller borrow or establish a locate for the short stock to be delivered to the buyer. This means before the execution or trade of any short sale of stock, firms must locate the stock for borrowing to ensure the delivery of the stock will be made on the settlement date.
The lending firm will provide a tag # to the fiom of the short seller,
the tag number must be on the order ticket.
Good-til-Canceled
an order that is left on the specialists book until it is either excecuted or canceled, (syn open order) limit orders to buy or sell a stock that lasts until the order is compieted or canceled by the Customer or the firm.
Sell Stop Orders
- protect against loss in a long stock
Position - protect a gain from a long stock position
- establish a short position when a breakout occurs below the line of or support
Underwriter
a broker-dealer specializing in investment banking, the process of underwriting new issues
interest rate risk
the systematic risk associated with investments, relating to the sensitivity of price or value, to thetations at the carent level of interest rates
Buy stop orders
• protect against loss in a short stock position,
• protect a gain from a short stock position, and
• establish a long position when a breakout occurs above the line of resistance.
Call Up, Put Down
That is, calls become beneficial to the owner when the price of the stock goes up. Puts become beneficial to the owner when the price of the stock goes down.
Auction Market
Exchange securities are bought and sold in an auction market. Exchange markets are also sometimes called double-auction markets because both buyers and sellers call out their best bids and offers in an attempt to transact business at the best possible price. To establish the best bid, a buying broker-dealer must initiate a bid at least $0.01 higher than the current best bid. The best offer by a selling broker-dealer must be at least $0.01 lower than the current best offer.
Exchange Markets
also sometimes called double-auction markets because both buyers and sellers call out their best bids and offers in an attempt to transact business at the best possible price. To establish the best bid, a buying broker-dealer must initiate a bid at least $0.01 higher than the current best bid. The best offer by a selling broker-dealer must be at least $0.01 lower than the current best offer.
The Securities Exchange Act of 1934
gives the Federal Reserve Board the authority to regulate the extension of credit in the securities industry. For margin accounts, Regulation T states that customers must deposit a minimum of 50% of the price of the transaction within two additional business days of regular way settlement (T+2 for most securities). This is sometimes expressed as S+2 (settlement plus 2). Therefore, the deposit must be done within four business days of the transaction.
fill-or-kill order (FOK)
is an order that demands immediate complete execution or immediate cancellation. A fill-or-kill order instructs the broker to offer or bid (as the case may be) one time only; if the order is not completely filled immediately, it is canceled.
immediate or cancel order (OC)
a limit order that demands immediate execution or partial execution and then the immediate cancellation on any unfilled balance of the order.
All-or-none orders (AON)
limited price orders that are to be executed in their entirety or not at all (no partial transactions). An AON order is not canceled if it is not executed but, instead, remains alive until completely executed or canceled.
One cancels the other (OCO)
is a pair of orders, typically limit orders, whereby if one order is filled, the other order will be canceled. The order literally means one order or the other order gets executed but not both. The customer is willing to take an execution on either one, not both. Sometimes neither order gets executed. These orders are usually option orders, something like, “I’ll buy 10 of the July 50 at a specific price or 20 of the July 55 at another price.”
