Chapter 7 - Margin
Reg T Governs the extension of credit for which of the following: 1. Listed common stock 2. NASDAQ national market system OTC securities 3. Government Securities
1,2 Government securities are exempt from Reg T
A customer has excess equity in his long margin account which he decides to withdraw in cash. Which two of he following will occur? 1. Debit Balance will decrease 2. Debit Balance will increase 3. Equity will decrease 4. Equity will increase
2. Debit Balance will increase 3. Equity will decrease
A maintenance call can be satisfied by a deposit of which of the following? 1. Listed stocks having a market value equal to the call 2. Marginable unlisted stocks having a loan value 3. An amount of cash equal to the call 4. An amount of cash equal to 50% of the call
2. Marginable unlisted stocks having a loan value 3. An amount of cash equal to the call
A customer buys 100 shares of XYZ at $70/share. Regulation T is 50%. Two weeks later, the customer deposits the margin requirement. The stock appreciates to $80/share. Which of the following is true? 1. Customer's excess equity is $1,200 and may be withdrawn 2. Without an extension, a violation of Reg T has occurred. 3. $1,200 must be deposited to meet the maint requirement 4. The margin requirement is $3,500
2. Without an extension, a violation of Reg T has occurred. 4. The margin requirement is $3,500
In a margin Account Long, min maint requirement is
25%
In a general margina ccount, hypothecation occurs when
A broker/dealer makes a margin loan to a customer and uses the customer-margined securities as collateral for the loan.
If a customer's cash account is frozen due to the failure to make prompt payment:
Additional purchases (except for exempt securities are not permitted unless sufficient funds are already in the account before the order is processed
A client is currently filling out the paperwork for a new margin account with your firm. The client calls and asks about the purpose of the loan consent agreement. What is the most appropriate descritpiion?
Agreement provides the firm with the authority to lend margined securities from the customer's account to other firms and customers for purposes such as short sales.
An investor opens a margin account and completes a hypothecation loan consent and credit agreement. Which of the following statements are true concerning shares held in the margin account? 1. They can be loaned for short sales 2. They are held in street name by the brokerage firm 3. They can be used as collateral for bank loans 4. They may be used to secure the debit balance
All
In a long margin account which of the following are true if the market value decreases? -Debit balance is unchanged -SMA is unchanged -Equity Decreases
All
Transactions in which of the following may take place in a margin account? 1. US Government Securities 2. Corporate Covnertible Bonds 3. Corporate non-convertible bonds 4. State and municipal Obligations
All
What type of investor would most likely open a margin account?
An investor seeking leverage
What function does the "credit agreement" at a broker/dealer firm accomplish?
It describes the terms and conditions of the margin credit extended by the b/d to the customer
A customer with a margin account could receive either a Reg T initial call or a maintenace call. Which of the following best describes an initial Reg T call?
It is a call for equity from the customer which will satisfy the Reg T requirement on new purchases
When a stock dividend is paid, what happens ot the market price? What happens to the number of shares and remainder in the account?
Market price is adjusted, number of shares would increase bu tthe remainder of the account would remain the same.
Equity in a mixed margin account is equal to?
Market value Long - Debit Balance + Credit Balance - Short Market Value
What is true for an investor with a short margin account?
Market value of securities decrease - equity increases. When selling short, you want market value to DECREASE. Causes equity in account to INCREASE
Broker/Dealer may hold customer's fully paid securities if
Segregated by broker/dealer All fully paid customer securities held by a b/d must be segregated and not used by b/d
A customer's margin account is long 1,000 shares of ABC stock which has a market value of $100/share. Account has a debit balance of $60,000. ABC corporation subsequently pays a 20% stock dividend. On the day the additional 200 shares of ABC are received into the customer's account as a result of the stock dividend, what adjustment is made to the account?
The debit balance and the equity are unchanged and the number of shares of ABC in the account is increased.
Customer buys $20,000 of securities in his cash account. On the settlement date, he tells the RR he cannot pay. He says to sell out the purchase.
Under Reg T, account must be frozen for 90 days.
A customer has the following current account. Reg-T is 50%. Retention requirement = 50% $25,000 Market Value SMA = 0 -15,000 Debit Balance ------------ $10,000 Equity He sells $2,000 of securities in the account and does not withdraw anything. What is his adjusted SMA Balance?
$1,000 Since the debit balance exceeds half the market value, we can determine that the account is "restricted" Since the account is restricted, the customer would be allowed to withdraw half of the sale proceeds -or- the amount that could have been withdrawn will be credited to the SMA. Sale $2,000 x .50 = $1,000 w/draw or sma credit
LMV $40,000 DB $24,000 SMV $15,000 CB $12,000 Equity?
$13,000
Assume a customer has the following margin accounts: Long Mkt Value $30,000 Debit Bal $16,000 Short Mkt Value $15,000 Credit Bal $18,000 What is the customer's equity in the two accounts?
$17,000
A customer opening a new margina ccount sells short 200 shares of ABC at $18.50/share. What would be the required deposit from the customer transaction?
$2,000
Initial transaction in a customer's margin account is the short sale of 100 ABC @ 28. After meeting the Reg T requirement, what would be the equity in the account?
$2,000 $2,800 Proceeds of short sale +$2,000 min initial deposit ---------- 4800 credit balance -2800 CMV short -------- $2,000 equity
Client's margin account has the following positions: $67,000 Current Market Value 30,000 Debit balance ------------ $37,000 Equity Reg T is 50% House Maintenance is 30%. Federal Retention is 50%. What total dollar amount may the broker/dealer borrow according to the rehypothecation regulations?
$30,000 A b/d may only borrow up to the amount of the customer's the customer's debit balance but would be able to use 140% of the debit as collateral for the rehypothecation loan.
A customer is short 1,000 shares of ABC @ $4 per share in his margin account. What is the initial margin requirement?
$4,000 Margin requirement for a short sale depends on CMV of stock. Less than $5, depoist is $2.50/share or 100% of market value, whichver is greater.
In an established margina ccount, a customer sells short 10000 shares of ABC @ 7. What is the required margin on this position? Reg-T is 50%
$5,000 Requirement when stock is trading at 7 is $5/share
Mr. Jones has a margin account with no cash or securities position. He purchases 100 shares of WL at 83 and one WL Jan 90 Listed put @ 10. Required deposit when Reg T is 50% is
$5,150 $8,300 Mkt x .50 Reg T ---------- $4150 Deposit $1,000 Option deposit +4,150 Stock deposit -------- $5150
One of your clients has opened a short margin account. Customer's account stands as follows: Credit balance $65,000 short market value: $44,000 All securities in account have a current market value of $25 or more. When will this customer receive a margin call on their position?
$50,000 To determien how high the market value of a short stock can rise before the customer will receive a margin call you would take the credit balance divided by 1.30.
A customer's margin account has a market value of $10,000, a debit balance of $8,000 and SMA of $500. NYSE maintenance call could be satisfied with:
$500 cash $10,000 MV $10,000 MV -8,000 DB x .25 -------- --------- $2,000 EQ $2,500 Min Maint Req $500 cash