Margin

A customer's margin account has a credit balance of $20,000 and a debit balance of $15,000. On what amount will the customer be charged interest? a. 0 b. $5,000 c. $15,000 d. $20,000

C. $15,000 Customers are charged interest on the average daily amount of the debit balance in their account. Generally, they are not charged interest in a short account.

A customer opens a new margin account and buys 100 shares of XYZ Corporation at $40 per share. She then writes a call option against the position and receives a $2 premium. The customer must deposit cash in the account of: a. $1,800 b. $1,900 c. $2,000 d. $2,100

A. $1,800 The purchase of $4,000 worth of stock would require a $2,000 deposit (50% of $4,000 = $2,000). Since the call is covered, there is no margin requirement. The customer received $200 in premiums. This would be deducted from the $2,000 margin call, requiring a cash deposit of $1,800.

The market value of a margin account is $12,000. The debit balance is $6,000. A cash dividend of $100 is credited to the account. What is the new debit balance? a. $5,900 b. $5,950 c. $6,000 d. $6,100

A. $5,900 When a cash dividend is paid, it reduces the debit balance. The entire cash dividend of $100 will be allocated to reduce the debit balance of $6,000. The new debit balance is $5,900.

A customer fails to pay for securities by payment date. Which of the following statements is TRUE? a. The account is frozen for 90 days b. The customer is prohibited from opening another account for 90 days c. The customer may trade after 30 days d. The account is closed because it is in violation

A. the account is frozen for 90 days When a customer fails to pay for securities, the account is restricted (frozen) for 90 days. Before the customer may buy additional securities, the customer must deposit the full purchase price of the securities in the account. This is a Regulation T requirement. The other choices are incorrect.

A customer has a long margin account with a market value of $30,000 and a debit balance of $20,000. His short margin account has a $7,000 market value and a $10,000 credit balance. The FRB margin requirement is 50%. How much cash may the customer withdraw from the account? a. 0 b. $10,000 c. $17,000 d. $23,000

A. 0 The long account is restricted because the equity of $10,000 is less than the initial FRB requirement ($30,000 market value times 50% FRB requirement equals $15,000 required equity). There is no excess equity in the short account since the equity of $3,000 ($10,000 credit balance minus $7,000 market value) is less than the FRB requirement of $3,500 (50% of $7,000 market value).

Which of the following lists assists a broker-dealer in making a reasonable determination that a security is available to be borrowed from another broker-dealer in order to effect a short sale transaction? a. An Easy-to-Borrow List b. A Hard-to-Borrow List c. A Threshold Security List d. A Restricted Stock List

A. an easy-to-borrow list In order to aid in the process of locating securities, the SEC has accepted the use of Easy-to-Borrow lists. These lists, which must be less than 24 hours old, provide reasonable grounds for belief that a security on the list will be available to be borrowed. The securities on the list must be readily available to avoid fails to deliver. Use of an Easy-to-Borrow list expedites the fulfillment of the locate provision. A Hard-to-Borrow list refers to securities that a clearing broker-dealer may have difficulty in borrowing.

How often is a broker-dealer required to calculate the amount of margin a customer is required to deposit? a. Daily b. Every three business days c. Every five business days d. Monthly

A. daily FINRA requires a broker-dealer to calculate the amount of initial and maintenance margin that must be maintained in a customer's account on a daily basis.

Regarding cash and margin accounts, which of the following statements is NOT TRUE? a. In a cash account, a customer is only required to deposit 50% of a purchase b. In a margin account, a customer is only required to deposit 50% of a purchase c. Under Regulation T, a customer must fully pay for her purchase in a cash account by no later than the fifth business day following the trade date d. Under Regulation T, a customer must pay for her portion of a purchase in a margin account by no later than the fifth business day following the trade date

A. in a cash account, a customer is only required to deposit 50% of a purchase The provisions of Regulation T apply to both cash and margin accounts. In both accounts the required customer deposit must be made by the fifth business day after the trade date. However, the required customer deposit amount is different based on whether the purchase is made in a cash or margin account. For any purchases that are made in a cash account, a customer must make full payment (no credit is extended by the B/D); on the other hand, for any purchases that are made in a margin account, a customer is only required to pay 50% (50% credit is extended by the B/D).

Margin requirements established by the FRB may be: a. Increased by broker-dealers in the form of in-house rules b. Decreased by broker-dealers in the form of in-house rules c. Disregarded by institutional investors d. Replaced by SRO rules

A. increased by broker-dealers in the form of in-house rules Margin requirements established by the FRB may be increased by broker-dealers in the form of in-house rules. FRB rules apply to both retail and institutional investors and may not be replaced by SRO rules.

An investor purchased $200,000 of 6% general obligation bonds on margin. The customer has a debit balance of $50,000 and is paying interest of 10% yearly on the debit balance from the purchase of the municipal bonds. How much interest expense may the investor use as a deduction for federal income tax purposes? a. None b. $5,000 c. $10,000 d. $12,000

A. none The investor may not use any of the interest expense as a deduction against ordinary income. Interest charges on money borrowed to purchase federally tax-exempt municipal securities may not be used as an interest expense deduction for federal income tax purposes. The investor is already receiving the benefit of tax-free interest income from the municipal bond and the IRS will, therefore, not allow the interest expense to be deducted as well.

A customer buys $10,000 worth of stock in a cash account. Two business days after the transaction settles, the customer calls the broker and tells the broker he does not have sufficient funds to pay for the stock. The brokerage firm will: a. Sell him out and freeze the account according to Regulation T of the FRB b. Sell him out and, if there is no loss, there is no penalty c. Automatically give the customer an extension for two days d. Automatically give the customer an extension for five days

A. sell him out and freeze the account according to Regulation T of the FRB According to Regulation T of the Federal Reserve Board, the brokerage firm must sell out the securities in the account and freeze the account for 90 days.

When a customer purchases securities and fails to pay for them by the payment date, the brokerage firm will: a. Sell out the securities and freeze the account b. Notify the customer's bank c. Notify the SEC d. Notify the NYSE and FINRA

A. sell out the securities and freeze the account When a customer purchases securities and fails to pay by the Reg T payment date (within 2 business days following settlement), the brokerage firm will sell out the securities and freeze the account for 90 days.

The initial FRB margin requirement is 50%. A customer purchases 1,000 shares of XOP at $48 per share and makes the necessary deposit. If XOP increases in value to $57 per share and later declines to $45 a share, which of the following statements is TRUE? a. The SMA in the account is $4,500 and the equity is $21,000 b. The SMA in the account is $4,500 and the equity is $33,000 c. There is no SMA and the equity is $21,000 d. The SMA is $9,000 and the equity is $33,000

A. the SMA in the account is $4,500 and the equity is $21,000 First, determine the amount of the debit balance. If the customer purchased $48,000 worth of stock at a 50% margin requirement and deposited $24,000, the debit balance is $24,000 ($48,000 market value - $24,000 margin requirement = $24,000 debit balance). XOP increased to $57 per share, making the market value $57,000. The equity increases to $33,000. The excess equity (SMA) is found by subtracting the FRB-required equity of $28,500 (50% of $57,000) from the actual equity in the account of $33,000. The SMA is, therefore, $4,500. The SMA remains in the account until it is used. The SMA balance will never decrease because of market movements. Securities held in a margin account that increase in value can create excess equity (SMA) but, if these securities later decline in value, this will not decrease SMA. The equity decreases since the market value declined to $45 per share and is now $21,000 ($45,000 - $24,000).

To compute equity in a margin account with both short and long positions, the formula is: a. The long market value plus the credit balance minus the short market value minus the debit balance b. The long market value minus the credit balance minus the short market value minus the debit balance c. The long market value plus the debit balance minus the short market value minus the credit balance d. The long market value plus the credit balance plus the debit balance minus the short market value

A. the long market value plus the credit balance minus the short market value minus the debit balance The long market value plus the credit balance minus the short market value minus the debit balance equals the equity in both a long and short margin account.

An investor establishes a long margin account and buys 1,000 shares of TMP at $55. The value of the securities increases and SMA is created. All of the following actions affect SMA, EXCEPT: a. The value of the securities declines b. The value of the securities increases c. Cash is withdrawn from the account d. The buying power of the accounts used

A. the value of the securities declines The SMA remains in the account until it is used. The SMA balance will never decrease because of market movements. A decrease in the market value of the securities does not affect the SMA in a long account since, once created, SMA is reduced only when used. An increase in the market value of the securities can increase SMA, since equity increases. Withdrawing cash and buying of additional securities for the account will reduce the SMA since the SMA is used

A customer has a restricted margin account. The customer sells $7,000 worth of securities and on the same day buys $5,000 worth of other securities. The Regulation T margin requirement is 50%. The customer may: a. Withdraw cash equal to the margin requirement on the net amount b. Not withdraw anything because the account is restricted c. Withdraw the entire $2,000 net amount d. Withdraw 50% of $7,000

A. withdraw cash equal to the margin requirement on the net amount When a customer buys and sells securities in a restricted margin account on the same day, it is called a same-day substitution and the transactions are netted against each other. In this question, the sale of $7,000 and the purchase of $5,000 result in a net sale of $2,000. The entire amount will be used to reduce the customer's debit balance, and the customer's SMA will be credited with an amount equal to the net sale proceeds multiplied by the Reg T requirement ($2,000 x 50% = $1,000). If desired, the customer may then borrow this amount.

An investor sold 100 shares of STC short at $40 per share and wrote an STC Oct 40 put at 4. How much cash did the investor need to deposit? a. $1,200 b. $1,600 c. $2,000 d. $2,800

B. $1,600 Since margin requirements are different for equities than for options, each transaction must be treated separately. The margin requirement for a short sale of stock is 50%. Since the investor sold short $4,000 (100 shares x $40) of stock, the margin requirement is $2,000. If an investor writes a put and is short the stock, the put is considered covered and there is no margin requirement. The investor received $400 for writing the put and would, therefore, need to deposit $1,600. ($2,000 margin requirement on the short sale minus the $400 premium received.)

Market value = $12,000 Debit Balance = $8,400 How far could the market value of the securities in the account decline, before a maintenance call will be sent? a. $8,000 b. $11,200 c. $11,400 d. $12,500

B. $11,200 To determine how far the securities worth $12,000 in the account can decline before the customer receives a maintenance call, multiply the debit balance of $8,400 by 4/3. $8,400 x 4 = $33,600 divided by 3 = $11,200. Another method that can be used is to take 1/3 of the debit balance, which is $2,800, and add it to the debit balance of $8,400. The result would be 4/3rds of the debit balance and would equal $11,200. ($8,400 + $2,800 = $11,200.)

A customer has a long margin account with a market value of $30,000 and a debit balance of $20,000. His short margin account has a $7,000 market value and a $10,000 credit balance. The FRB margin requirement is 50%. What is the minimum equity requirement for the short position? a. 0 b. $2,100 c. $9,000 d. $11,000

B. $2,100 The SRO minimum maintenance requirement for a short position is 30% of the market value. The market value is $7,000, and 30% of $7,000 equals $2,100.

A client has a margin account with the following positions: short 2,000 shares of EXA at $22 and long 2,000 shares of EXA at $24. The client's maintenance requirement is: a. $2,200 b. $2,400 c. $11,500 d. $13,200

B. $2,400 The answer to this question is determined by calculating the margin maintenance requirement of a short against the box position. If a client is long and short an equal number of shares of the same security, the maintenance requirement is equal to 5% of the long position. In this question, since the long position is equal to $48,000, the maintenance requirement is $2,400 ($48,000 x 5%).

An investor's margin account has a market value of $20,000 and a debit balance of $9,000. Based on these balances, the investor has buying power of: a. $0 b. $2,000 c. $1,000 d. $3,000

B. $2000 To determine the amount of buying power, first determine the amount of excess equity. The formula for calculating the account's equity is long market value ($20,000) minus the debit balance ($9,000); therefore, the current equity balance is $11,000. The Regulation T requirement of 50% indicates that the customer should have equity of $10,000 ($20,000 x 50%), but has actual equity of $11,000. By comparing these two numbers, the result is excess equity of $1,000. The $1,000 of excess equity is recorded in the special memorandum account (SMA). The amount of buying power is ultimately calculated by multiplying the SMA balance by two (SMA x 2). In this example, the buying power is $2,000 ($1,000 x 2).

An investor with an existing margin account sells short 1,000 shares of ABC at $42 and buys 10 ABC May 45 calls which each have a premium of 4. What is the customer's required deposit based on these transactions? a.$23,000 b.$25,000 c.$21,000 d.$46,000

B. $25,000 The FRB's Regulation T requirement of 50% applies to both purchase and short sales that are executed in margin accounts. For that reason, the $42,000 short sale creates a required deposit of $21,000 for the customer. Since options are not marginable, the $4,000 option purchase must be paid for in full. When the separate requirements of the two transactions are combined, the customer is required to deposit $25,000.

The minimum equity requirement for a pattern day trader is: a. $25,000, which the client has five business days to deposit b. $25,000, which must be deposited before the client may continue day trading c. Four times the maintenance requirement for the account d. $2,000 or 100% of the short market value

B. $25,000, which must be deposited before the client may continue day trading The minimum equity requirement for a pattern day trader is $25,000. This amount must be deposited in the account before the customer may continue day trading and must be maintained in the customer's account at all times. Day-trading buying power is limited to four times the trader's maintenance margin excess, determined as of the close of the previous day.

In a margin account, an investor bought 1,000 shares of RST at $60 and, as a hedge, she also purchased 10 RST July 60 puts which each had a premium of 5. Based on these transactions, what is the customer's required deposit? a.$30,000 b.$35,000 c.$32,500 d.$65,000

B. $35,000 The key to this question is to recognize that the margin requirement on the shares is different than the margin requirement on the options. Since the $60,000 stock purchase is being made in a margin account, Regulation T requires the customer to deposit 50% of the purchase, which is $30,000 ($60,000 x 50%). However, since options cannot be purchased on margin, the contracts must be paid for in full. Therefore, the full $5,000 option premium payment is required. When the two requirements are added together the customer's required deposit is $35,000.

The initial FRB margin requirement is 50%. A customer purchases 1,000 shares of Depaul Corporation stock at $70 per share and makes the necessary deposit. If the stock increases in value to $78 per share and later declines to $67 a share, how much SMA would the customer have in the account? a. 0 b. $4,000 c. $8,000 d. $16,000

B. $4,000 First, determine the amount of the debit balance. If the customer purchased $70,000 worth of stock at a 50% margin requirement and deposited $35,000, the debit balance is $35,000 ($70,000 market value - $35,000 margin requirement = $35,000 debit balance). Depaul increased to $78 per share, making the market value $78,000. The equity increases to $43,000. The excess equity (SMA) is found by subtracting the FRB-required equity of $39,000 (50% of $78,000) from the actual equity in the account, $43,000. The SMA is, therefore, $4,000. The SMA remains in the account until it is used. The SMA balance will never decrease because of market movements. Securities held in a margin account that increases in value can create excess equity (SMA). However, if these securities later decline in value, this will not decrease SMA.

A client has a margin account with the following arbitrage position: short 2,000 shares of EXA at $22 and long 40 EXA convertible bonds at $1,150 that are convertible at $20. If the client is using the convertible bonds as a hedge, the maintenance requirement is: a.$4,400 b.$4,600 c.$11,500 d.$13,200

B. $4,600 To answer this question, the industry margin maintenance requirement for an arbitrage position must be applied. If a client is long a security that is convertible into an equal number of shares of a short position being carried by the same client, the maintenance requirement is 10% of the current market value of the long position. This is an industry rule, not a Regulation T requirement. Each bond is convertible into 50 shares (the par value of $1,000 divided by the conversion price of $20). The client may convert the 40 bonds into a total of 2,000 shares (40 bonds x 50 shares), which is equal to the number of shares the client is short. The maintenance requirement is 10% of the long position, which is equal to $4,600 ($1,150 x 40 bonds x 10%).

A customer purchases $10,000 of stock on margin. Before depositing the required amount, the stock rises to a market value of $12,000. How much will the customer be required to deposit? a. $4,000 b. $5,000 c. $6,000 d. $7,000

B. $5,000 Regulation T requires 50% of the purchase price to be deposited by the customer within two business days after the settlement date of the transaction (five business days from the trade date). Any market price change during this period will not affect the amount of the deposit. The requirement will be $5,000 (50% of the purchase price of $10,000).

A customer has a restricted margin account with a debit balance of $7,500. The account is credited with $1,600 in cash dividends and debited with interest charges of $50. The debit balance after the adjustments is: a. $5,900 b. $5,950 c. $6,000 d. $6,050

B. $5,950 The debit balance is reduced from $7,500 to $5,900 when the cash dividends of $1,600 are credited to the account ($7,500 - $1,600 = $5,900). Adding interest charges of $50 to the debit balance results in a final debit balance after adjustments of $5,950 ($5,900 + $50 interest charges = $5,950).

What is the SRO maintenance requirement on a $1 million purchase of a 2x Long Gold Index ETF? a.$1,000,000, since these securities are not eligible for additional margin b.$500,000 c.$250,000 d.$125,000

B. $500,000 Leveraged ETFs have maintenance requirements in excess of the typical SRO thresholds of 25% on long positions and 30% on short positions. The process for determining the margin requirement on these securities uses the standard SRO maintenance requirement and multiplies by the portfolio leverage factor. In this case, the standard long requirement is 25% which is multiplied by a factor of 2; therefore, the client must maintain a 50% margin. $1,000,000 x 25% = $250,000. $250,000 x 2 = $500,000.

A customer purchases $15,000 in convertible bonds (15 bonds at $1,000 par). The Federal Reserve Board margin requirement is 50% and the customer deposits $7,500. If the bonds increase in value to 108 ($16,200), how much excess equity will the customer have in the account? a. $300 b. $600 c. $1,200 d. $8,700

B. $600 If the bonds increase in value to $16,200, the equity in the account will be $8,700 (market value of $16,200 - $7,500 debit balance). The initial FRB requirement on $16,200 market value is $8,100 (50% x $16,200). Since there is $8,700 of equity, there is $600 of excess ($8,700 equity - $8,100 requirement).

A customer's margin account has a market value of $15,000, a debit balance of $8,000, and SMA of $1,000. The equity in the account is: a. $6,000 b. $7,000 c. $8,000 d. $14,000

B. $7000 The equity in a long margin account equals market value minus the debit balance. The equity equals $7,000 ($15,000 - $8,000). SMA does not enter into the calculation of equity.

Before a broker-dealer may offer a portfolio margin program to its clients, the firm must obtain approval from: a. The options exchange b. FINRA c. The SEC d. The OCC

B. FINRA Prior to establishing a portfolio margin program for its clients, a broker-dealer is required to obtain approval from FINRA. With a portfolio margin program, a broker-dealer is able to offer larger loans to its clients; however, this will also create greater risk of the firm going bankrupt. The reason for requiring approval is that FINRA wants the opportunity to analyze whether the broker-dealer is capable of handling the potential risks that portfolio margin accounts create.

A call option is covered by all of the following choices, EXCEPT: a. An escrow receipt b. A short position in the underlying stock c. A bond convertible into 100 shares of the underlying stock d. 100 shares of the underlying stock

B. a short position in the underlying stock For a call option writer to be considered covered, the writer could own 100 shares of the underlying stock, have an escrow receipt, or own bonds convertible into at least 100 shares of the underlying stock. Since the writer's obligation is to deliver stock if the option is exercised, a short position would not cover a call.

A customer's initial trade in a margin account is the short sale of 500 shares of DEF stock at $20. After making the required deposit, the credit balance in the account is: a. $5,000 b. $10,000 c. $15,000 d. $20,000

C. $15,000 The credit balance in a short margin account is determined by adding the short sale proceeds and the Reg T deposit. In this example, the short sale proceeds are $10,000 (500 shares x $20). The Reg T requirement is $5,000 ($10,000 x 50%). The credit balance is $15,000.

The term marking-to-the-market refers to: a. A market maker and the securities he trades b. Adjusting the contract price to the current market price of an open contract for purposes of determining if additional cash is required c. The comparison of the market value of an investor's stock portfolio to the stock market d. The pledge of securities for the purpose of obtaining a loan

B. adjusting the contract price to the current market price of an open contract for purposes of determining if additional cash is required Marking-to-the-market refers to adjusting the contract price to the current market price of an open contract for purposes of determining if additional cash is required. This may occur when a customer writes uncovered options and the underlying stock moves against the writer. The customer might need to deposit additional funds and would be marked to the market for the appropriate amount. This could also occur when a customer sells stock short and the stock increases in value.

If a customer is short 1,000 shares of RST stock, the customer: a. Must cover the position within six months b. Can use a buy stop order to limit losses if the stock advances c. May use the entire credit balance in the account to buy more stock d. Is entitled to receive dividends and vote at the annual meeting

B. can use a buy stop order to limit losses if the stock advances A short position will be profitable if the market price of the security decreases. If the stock increases, the investor will have a loss. A buy stop order is placed above the market. If executed, stock will be purchased preventing further loss. There is no limit to the length of time that a short position may remain open. A portion of the short credit balance must always remain in the account to be used eventually to cover the short position. An investor who is short the stock does not receive dividends and does not have the right to vote.

A customer has a short margin account with a broker-dealer. This account must be marked to the market: a. Twice a day b. Once a day c. Once every five business days d. Once a month

B. once a day The term marked to the market refers to the adjustment made in a customer's account due to a change in the market value of the securities. A margin account is marked to the market once a day (daily) to make sure the account is above the maintenance requirement. Any change may result in the customer being required to deposit additional funds in the account.

Which of the following securities may not be used as collateral in a margin account? a. NYSE-listed securities b. Option contracts c. Treasury bills d. Nasdaq-traded securities

B. option contracts Option contracts have no loan value and therefore may not be used as collateral in a margin account. The exception is LEAPS, which can be bought on margin and, therefore, have loan value. LEAPS are equity options that can have a maximum life of 39 months.

The Federal Reserve Board was given the authority to set margin requirements according to the provisions of the: a. Securities Act of 1933 b. Securities Exchange Act of 1934 c. Securities Investor Protection Act of 1970 d. Investment Company Act of 1940

B. securities exchange act of 1934 The Securities Exchange Act of 1934 gave the Federal Reserve Board the power to set margin requirements. This is done through Regulation T (for broker-dealers) and Regulation U (for banks and lenders other than broker-dealers).

Which of the following transactions is not prohibited under the Securities Exchange Act of 1934? a. A trader buys shares late in the day to prevent the price of a security from falling b. Short sales of municipal bonds c. Selling short shares of an exchange-traded stock without borrowing the security d. Two traders enter into transactions where ownership does not actually change, in order to increase trading volume

B. short sales of municipal bonds All of the choices listed are prohibited according to the Securities Exchange Act of 1934 except short sales of municipal bonds. Short sales of securities are subject to the borrowing requirements of Regulation SHO. This makes choice (c) a violation. Municipal bonds are exempt securities and are not subject to the borrowing requirements of Regulation SHO. Any person that buys or sells a security for the purpose of attempting to stop the price from falling (pegging) or rising (capping) is engaging in a manipulative action. Persons who enter into transactions to increase volume, without ownership changing, have engaged in painting the Tape. This is a manipulative act and is a violation.

If a cash dividend is paid, how does it affect a margin account? a. SMA is decreased b. The debit balance is reduced c. The market value is increased d. The equity is reduced

B. the debit balance is reduced When a cash dividend is paid, the debit balance is reduced by the amount of the dividend. The SMA is also increased by the amount of the dividend. The market value changes due to fluctuations in the price of the security.

An investor who owns 1,000 shares of ABC informs you that he wants to sell short against the box. Which of the following statements is TRUE? a. This type of transaction is only permitted by institutional investors b. This type of transaction is permitted if the order ticket is marked short c. This type of transaction is permitted if the order ticket is marked long d. This type of transaction is only permitted in a cash account

B. this type of transaction is permitted if the order ticket is marked short In certain instances, a client (institutional or retail) that is long a security may want to sell the stock, but not deliver his long position. The client must borrow the security to effect delivery, requiring the order ticket to be marked short. This type of transaction is called selling short against the box. The term box is an old industry term referring to a safe deposit box. Short sales are permitted to be executed only in a margin account.

A customer's initial transaction in a margin account is the purchase of 100 shares of XYZ at $15 per share. What amount must be deposited by the customer in this new account? a.$375 b.$750 c.$1,500 d.$2,000

C. $1,500 The key to this question is recognizing that this represents the customer's initial purchase of securities in the new margin account. The minimum initial equity requirement is 100% of the purchase or $2,000, whichever is less. Since the transaction represents a $1,500 purchase (which is less than $2,000), the customer must deposit the full $1,500. A broker-dealer will not provide a loan in a new margin account unless the customer has equity of at least $2,000.

A customer opens a margin account and signs the basic customer margin agreement, which consists of a credit agreement, loan consent agreement, and hypothecation agreement. If the customer's initial transaction in the account is to buy 100 shares of XYZ stock at a price of $36, the customer: a. May personally take delivery of all of the shares that are purchased b. Will pledge the stock to her broker-dealer in order to secure the loan he is receiving c. Will be obligated to pay interest on a debit balance of $1,800 d. Will allow the brokerage firm to lend some of the stock, but only to other customers on a case-by-case basis

B. will pledge the stock to her broker-dealer in order to secure the loan he is receiving In a margin account, customer securities are always held in street name so that the broker-dealer is able to liquidate shares if necessary. By completing the hypothecation agreement, the customer agrees to pledge the securities to the broker-dealer as collateral for the loan. As for the other parts of the margin agreement, the loan consent agreement permits the firm to lend the securities to other customers or other broker-dealers. The credit agreement establishes the customer's responsibility to pay interest on the debit balance. For a new account, the minimum initial margin requirement is $2,000 or 100% of the purchase, whichever is less. Since the initial trade was for $3,600, the customer is required to deposit $2,000 which means that he can borrow $1,600.

A customer's margin account has a market value of $15,000, a debit balance of $8,000, and SMA of $1,000. If the customer sold $1,000 of securities, what is the maximum amount the customer is permitted to withdraw after the sale? a. None b. $1,000 c. $1,500 d. $2,000

C. $1,500 This account is restricted since the equity ($7,000) is less than the Reg T requirement of the account's market value ($15,000 x 50% = $7,500). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage firm to reduce the customer's debit balance. The broker-dealer will also credit the customer's SMA with an amount equal to the sale proceeds multiplied by the Reg T requirement of 50%. In this question, the sale of $1,000 worth of stock will result in a $500 credit to the customer's current SMA ($1,000). The customer is then at liberty to borrow the total SMA of $1,500.

A customer's margin account is as follows. Long Market Value $25,000 MNO $11,000 XYZ Debit Balance $20,000 SMA $ 800 The customer sells $3,000 of stock in the account. What will the value of the SMA be after the sale? a. $800 b. $1,500 c. $2,300 d. $3,800

C. $2,300 This account is restricted since the equity ($16,000) is less than the Reg T requirement of the account's market value ($36,000 x 50% = $18,000). When stock is sold in a restricted account, 100% of the sale proceeds will be used by the brokerage firm to reduce the customer's debit balance. The broker-dealer will also credit the customer's SMA with an amount equal to the sale proceeds multiplied by the Reg T requirement of 50%. In this question, the sale of $3,000 worth of stock will be used to reduce the customer's debit balance to $17,000 and the SMA will be credited by $1,500 ($3,000 sale x 50% Reg T). This will bring the SMA up to $2,300 ($800 + $1,500).

The initial FRB margin requirement is 50%. A customer purchased 100 XRX at $100 per share depositing the required margin. If Xerox increased in value to $150 per share, how much SMA would the customer have in the account? a. $1,000 b. $1,500 c. $2,500 d. $5,000

C. $2,500 First, determine the amount of the debit balance. If the customer purchased $10,000 worth of stock at a 50% margin requirement and deposited $5,000, the debit balance is $5,000. ($10,000 market value - $5,000 margin requirement = $5,000 debit balance). XRX increased to $150 per share, making the market value $15,000. The equity then increases to $10,000. The SMA (excess equity) is found by subtracting the FRB required equity of the current market value in the account (50% x $15,000 = $7,500) from the actual equity in the account ($10,000). The SMA is, therefore, $2,500.

In a margin account, an investor purchased 100 shares of XYZ stock at $60 per share and also sold an XYZ May 65 call at 3. What is the amount of cash that the investor must deposit? a.$300 b.$5,700 c.$2,700 d.$3,000

C. $2,700 The stock purchase is subject to the Regulation T requirement of 50%; however, since the option was sold and is covered by the long stock, there is no deposit required. The requirement on the stock purchase is $3,000, but the $300 premium received reduces the required deposit amount to $2,700

A customer sold short 1,000 shares of XYZ Corporation that is presently selling at $2 per share. Industry rules require a minimum maintenance margin of: a. $0.33 per share b. $2.00 per share c. $2.50 per share d. $2,000

C. $2.50 per share When a stock that has been sold short has a market value of less than $5, industry rules require a minimum maintenance margin of $2.50 per share or 100% of the value of the securities, whichever is greater. In this example, $2.50 per share is greater and the customer would have to deposit $2,500 in the account to meet the requirement.

A customer has the following accounts with a brokerage firm. Cash Account $20,000 securities (market value) $10,000 cash Long Margin Account $60,000 securities (market value) $30,000 debit balance $10,000 SMA Short Margin Account $40,000 securities (market value) $60,000 credit balance The total amount of cash that may be withdrawn from all the accounts is: a. $6,000 b. $15,000 c. $20,000 d. $40,000

C. $20,000 The $10,000 in cash may be withdrawn from the cash account. The $10,000 SMA in the long margin position may also be withdrawn for a total of $20,000. The short margin position does not have SMA. Therefore, in this example, nothing can be withdrawn from that position.

Market value = $12,000 Debit balance = $8,400 The minimum maintenance requirement for this account is: a. $2,000 b. $2,200 c. $3,000 D. $5,000

C. $3,000 The minimum maintenance requirement states that the equity must equal at least 25% of the market value of the securities in the account. This equals $3,000 (25% x $12,000 = $3,000)

Long account: $150,000 market value $50,000 debit balance Short account: $45,000 market value $75,000 credit balance Calculate the SMA for the following margin account: a. $7,500 b. $25,000 c. $32,500 d. $130,000

C. $32,500 The formula for calculating SMA is: Actual equity - Reg T Requirement = SMA •The equity in the long account is $100,000 ($150,000 LMV - $50,000 DR). •The equity in the short account is $30,000 ($75,000 CR - $45,000 SMV). •Total equity is $130,000. •The Reg T requirement for the long account is $75,000 ($150,000 LMV x 50%). •The Reg T requirement for the short account is $22,500 ($45,000 SMV x 50%). •The total Reg T requirement is $97,500. The combined SMA is, therefore, $32,500 ($130,000 Actual equity - $97,500 Reg T requirement).

A customer purchased 10 ABC January 50 calls, paying a $2 premium and 10 ABC January 50 puts, paying a $2 premium. The market price of ABC stock is $50 per share.The buyer of these 10 straddles will need to deposit: a. $1,000 b. $2,000 c. $4,000 d. $10,000

C. $4,000 When buying options, 100% of the purchase price (the premium) must be deposited. The customer paid a $2 ($200) premium for the call and a $2 ($200) premium for the put (a $4 premium for one straddle). The customer has purchased 10 straddles and paid $400 per straddle for a total of $4,000 (10 straddles x $400 = $4,000).

A customer has purchased 10 ABC January 50 calls, paying a $2 premium and 10 ABC January 50 puts, paying a $2 premium. The market price of ABC stock is $50 per share. The buyer of these 10 straddles will need to deposit: a. $1,000 b. $2,000 c. $4,000 d. $10,000

C. $4,000 When buying options, 100% of the purchase price (the premium) must be deposited. The customer paid a $2 ($200) premium for the call and a $2 ($200) premium for the put (a $4 premium for one straddle). The customer purchased 10 straddles and paid $400 per straddle for a total of $4,000. (10 straddles x $400 = $4,000.)

What is the SRO maintenance requirement on a $1 million short position of a 3x Inverse Gold Index ETF? a.$3,000,000 b.$1,000,000 c.$900,000 d.$300,000

C. $900,000 Leveraged ETFs have maintenance requirements in excess of the typical SRO thresholds of 25% on long positions and 30% on short positions. The margin requirement on these securities can be computed by multiplying the portfolio leverage factor by the standard SRO maintenance requirement. In this case, the standard short requirement is 30% multiplied by a factor of 3, so the client must maintain a 90% margin. $1,000,000 x 30% = $300,000. $300,000 x 3 = $900,000.

All of the following documents are needed to open a new discretionary margin account, EXCEPT a: a. New account form b. Basic customer margin agreement c. Trust agreement d. Power of attorney

C. trust agreement A new account form, a basic customer margin agreement, and a power of attorney are needed to open a new discretionary account. The basic customer margin agreement includes the hypothecation, loan consent, and credit agreements. A trust agreement is needed to open a trust account.

A customer sells short 1,000 shares of stock. A few weeks later the company declares a 5% stock dividend. When the customer covers the short sale, the customer will be required to deliver: a. 50 shares b. 1,000 shares c. 1,050 shares d. 950 shares

C. 1,050 shares When a customer sells short, the brokerage firm borrows stock to deliver it to the buyer. All cash and stock dividends declared are the responsibility of the customer who sold the stock short. In this example, the company declared a 5% stock dividend. Therefore, a customer who sold short 1,000 shares would be required to deliver 1,050 shares (1,000 shares x 5% = 50 additional shares) when covering the short sale.

When may a new issue become marginable? a. 3 days from the effective date b. 5 days from the effective date c. 30 days from the effective date d. 40 days from the effective date

C. 30 days from the effective date When approved for margin trading by the FRB, a new issue becomes marginable 30 days from the effective date of the offering.

Which of the following transactions qualifies a customer as a pattern day trader? a. 3 day trades executed in one week b. 3 day trades executed in one day c. 4 day trades executed in one week d. 10 day trades executed in one month

C. 4 day trades executed in one week A customer is considered a pattern day trader if 4 or more day trades are executed over any 5-business-day period. The minimum equity required for a pattern day trader is $25,000.

According to Regulation T, when purchasing an option contract the transaction must be paid for within: a. 1 business day b. 3 business days c. 5 business days d. 7 business days

C. 5 business days According to Regulation T, securities must be paid for within 2 business days of the standard (regular-way) settlement date. Since regular-way settlement is three business days, payment is required within five business days from the trade date. Therefore, while option transactions settle next day, the customer has five business days in which to pay for a purchase.

Which of the following formulae is used to determine the total equity in a combined margin account? a. LMV + DR - CR - SMV b. LMV - DR + SMV - CR c. LMV + CR - DR - SMV d. LMV - CR - DR + SMV

C. LMV + CR - DR - SMV To determine the equity in a combined margin account, take the long market value (LMV) plus the credit balance (CR), then subtract the debit balance (DR) and the short market value (SMV).

A put option may be written in a cash account if the investor: a. Is long the underlying security in the account b. Is short the underlying security in the account c. Has cash in the account equal to the exercise price d. Is long a call option on the same underlying security

C. has cash in the account equal to the exercise price To write a put in a cash account, the customer must have cash in the account equal to the exercise price. If the writer is short the underlying stock, the put is considered covered for margin purposes, but this transaction may not be written in a cash account, only in a margin account.

A customer who has purchases shares of an exchange-traded fund (ETF) may be extended credit by a broker-dealer: a. If the position has been held for at least 10 days b. If the position has been held for at least 30 days c. Immediately d. Under no circumstances

C. immediately In this question, the client is purchasing shares of an ETF. ETF shares trade on an exchange and are not considered new issues; therefore, credit may be extended immediately. Some investment company securities, such as mutual fund shares, are marginable under Reg. T. However, since mutual fund shares are considered new issues, the Securities Exchange Act of 1934 prevents a broker-dealer from extending credit on them for at least 30 days. Once the mutual fund shares have been held for 30 days, they may be used as collateral for a loan in a margin account.

A customer purchases 1,000 shares of ATT stock at 30, requiring a $15,000 deposit in her margin account. On the payment date, ATT is selling at 35 per share but the customer has not paid for the transaction. Which of the following actions is considered free-riding? a. Depositing $30,000 of fully paid for IBM stock to pay for the ATT stock b. Depositing $15,000 cash into the account and then liquidating the shares at 35 c. Liquidating the stock at 35 and using the sale proceeds to pay for the $15,000 margin requirement d. Requesting an extension, if there is a legitimate reason to do so

C. liquidating the stock at 35 and using the sale proceeds to pay for the $15,000 margin requirement The customer would not be permitted to liquidate the stock and use the sale proceeds to pay for the margin requirement. This illegal practice is known as free-riding. To satisfy the $15,000 margin requirement, the customer may deposit the full amount in cash or twice the amount in marginable securities. If there is a legitimate reason for the customer not paying, an extension may be requested.

A customer sells short 1,000 shares of DT at $60 a share on Monday, October 14 and deposits the Regulation T margin requirement. If on October 23 the stock is trading at $75 a share, which of the following statements is TRUE? a. The account will be closed by the broker-dealer b. The account will be adjusted on October 23 and no margin maintenance call will be issued c. The account will be adjusted on October 23 and a margin maintenance call will be issued d. The account will be adjusted on October 24 and a margin maintenance call will be issued

C. the account will be adjusted on October 23 and a margin maintenance call will be issued A short margin account is marked to the market once a day (daily) to make sure the account is above the maintenance requirement. The initial Regulation T margin requirement is 50% of $60,000, or $30,000. If the market value increases to $75 a share, the equity in the account will decline to $15,000. The current equity in the account is 20% of the short market value ($15,000 / $75,000), which is below the required 30% and, therefore, a margin maintenance call will be issued.

For an investor to be permitted to purchase an over-the-counter stock on margin, approval must be obtained from: a. A state securities Administrator b. The Securities and Exchange Commission c. The Federal Reserve Board d. FINRA

C. the federal reserve board Under Regulation T, the Federal Reserve Board is given the authority to set the margin requirements for different securities as well as to determine which securities are marginable

Mr. Green, a new client, decides to short 100 shares of JRF at $18 per share. What is the initial margin requirement for this trade? a. $2.50 per share b. 30% of current market value c. $1,800 d. $2,000

D. $2,000 If the initial transaction in a margin account is a short sale, industry rules require a minimum equity deposit of $2,000 or the required Reg. T deposit, whichever is greater. Since $2,000 is greater than $1,800, the required deposit is $2,000. For a purchase, the minimum equity requirement is the lesser of $2,000 or 100% of the purchase price.

An investor sells short 1,000 shares of JonCo stock at 3.50. The customer must deposit: a. $1,750 b. $2,000 c. $2,500 d. $3,500

D. $3,500 The required equity for a short sale where the stock is less than $5 per share is the greater of $2.50 per share or 100% of the market value. An investor selling 1,000 shares of JonCo stock short must deposit $3,500 because the market value (1,000 shares x $3.50) is greater than $2.50 per share (1,000 shares x $2.50).

An investor shorts a stock at $6 per share. What is the SRO minimum maintenance requirement for this position? a. $1.50 per share b. $1.80 per share c. $3.00 per share d. $5.00 per share

D. $5.00 per share The SRO minimum maintenance requirement for a stock sold short at $5 per share or above is $5 per share or 30% of the market value, whichever is greater.

A customer buys 10 ABC January 50 calls paying a $3 premium and 10 ABC January 50 puts also paying a $3 premium when the market price of the stock is $49 per share. The buyer will need to deposit: a. $1,000 b. $2,000 c. $4,000 d. $6,000

D. $6,000 When buying options, 100% of the purchase price (the premium) must be deposited. The customer paid a $3 ($300) premium for the call and a $3 ($300) premium for the put (a $6 premium for one straddle). The customer purchased 10 straddles and paid $600 per straddle for a total of $6,000. (10 straddles x $600 = $6,000).

A client has a margin account in which she is long and short 1,000 shares of the same security. Based on this position, if the current market value of the stock is $80 per share, the client is permitted to borrow up to: a.$4,000 b.$20,000 c.$40,000 d.$76,000

D. $76,000 This is a tricky question and the answer is based on the margin maintenance requirement of a short against the box position. If a client is long and short an equal number of shares of the same security, the maintenance requirement is equal to 5% of the long position. The maintenance requirement is equal to $4,000 (5% of $80,000). Therefore, the client is permitted to borrow 95% of $80,000, or $76,000. Choice (c) which is $40,000 (the Reg. T requirement of $80,000) is incorrect since it fails to take into account the client's total position.

A customer has the following accounts with a brokerage firm. Cash Account $20,000 securities (market value) $10,000 cash Long Margin Account $60,000 securities (market value) $30,000 debit balance $10,000 SMA Short Margin Account $40,000 securities (market value) $60,000 credit balance The Federal Reserve Board margin requirement is 50%. The total equity in all the accounts is: a. $50,000 b. $60,000 c. $70,000 d. $80,000

D. $80,000 The equity in the cash account equals $20,000 market value of the securities plus $10,000 in cash, for a total of $30,000. The equity in the long margin account is the market value of the securities ($60,000) minus the debit balance ($30,000). This equals $30,000. The $10,000 SMA is not taken into account when computing equity. The equity in a short margin account is computed by subtracting the current market value of the securities ($40,000) from the credit balance ($60,000). This equals $20,000. Adding the equity in all of the accounts, the total equity is equal to $80,000. ($30,000 equity in the cash account + $30,000 equity in the long margin account + $20,000 equity in the short margin account = $80,000.)

The amount of margin that must be deposited by the purchaser of an option contract is: a. 10% b. 20% c. 50% d. 100%

D. 100% According to Federal Reserve Board Regulation T, options may not be bought on margin. Therefore, the buyer will need to deposit 100% of the purchase price, which is the premium.

How much margin must the purchaser of one RFQ Feb 60 call for a $3 premium deposit? a. 25% b. 40% c. 50% d. 100%

D. 100% Options may not be purchased on margin. According to Regulation T, the full purchase price (the premium) must be deposited.

What is the margin requirement when purchasing options? a. 20% b. 30% c. 50% d. 100%

D. 100% When purchasing options, the margin requirement is 100% of the premium.

If a customer is currently short ABC stock and also short an ABC put, this position is referred to as: a. A covered call b. Short against the box c. An uncovered put d. A covered put

D. a covered put A covered put is created when an investor sells (writes) a put against an existing short stock position. This position is suitable for a client who believes that the stock will remain stable or decline slightly. However, due to the potential risk of the stock's increase in value against the short stock position, a covered put should only be created by clients with a high risk tolerance.

A customer's account is currently frozen. A registered representative is NOT permitted to accept: a. An order in a cash account if all the money is in the account before the order is entered b. An order in a margin account if the total dollar amount of the purchase is in the account before the order is entered c. A sell order for a security in a cash account if the security is in the cash account before the order is entered d. A sell order for a security in a cash account if the security is not in the account before the order is entered

D. a sell order for a security in a cash account if the security is not in the account before the order is entered When an account is frozen, the customer must have in the account what is required to complete the trade before an order may be accepted. This means that the required monies or securities must be in the account prior to accepting any purchase or sale orders. Choice (d) is not permitted as the securities are not held in the account at the time of accepting the sell order.

If a customer wants to purchase securities in an account that has been frozen, when must he deposit the required cash in the account? a. On the same day of the purchase b. No later than 5 business days after the purchase c. No later than 3 business days after the purchase d. Before the purchase transaction is made

D. before the purchase transaction is made A frozen account requires the full amount of money to be deposited in the account before the order is accepted. If the client wants to sell securities in a frozen account, the securities must be in the account before the sale is made.

In determining if additional margin is required in a customer's account, the broker-dealer will mark the account to the market: a. Quarterly b. Monthly c. Weekly d. Daily

D. daily The term marked to the market refers to the adjustment made in a customer's account due to a change in the market value of the securities. A margin account is marked to the market once a day (daily) to make sure the account is above the maintenance requirement. Any change may result in the customer being required to deposit additional funds into the account

A customer sells $1,000 worth of stock in a restricted margin account. All of the following statements are TRUE, EXCEPT the: a. Market value of the account will be reduced b. SMA will be increased c. Debit balance will be decreased d. Equity will be increased

D. equity will be increased When securities are sold in a restricted account, the customer is permitted to withdraw an amount equal to the FRB initial margin requirement (currently 50%). This amount is first credited to the SMA and may then be withdrawn. The full amount of the sale is used to reduce the debit balance. The market value will decrease since securities were sold. The equity will remain the same since the market price and debit balance were reduced by the amount of the sale. If the customer withdraws the amount credited to the SMA, the debit balance will increase and the equity will decrease.

A put option may be written in a cash account if the investor: a. Is long the underlying security in the account b. Is short the underlying security in the account c. Has an escrow receipt for the underlying security d. Has a cash balance in the account equal to the total exercise value of the contract

D. has a cash balance in the account equal to the total exercise value of the contract To write a covered put option in a cash account, the customer must have cash in the account equal to the total exercise value of the contract. If the writer is short the underlying stock, the put is considered covered for margin purposes, but this transaction may not be written in a cash account, only in a margin account.

All of the following can be bought on margin, EXCEPT: a. Common stocks listed on an exchange b. Preferred stocks listed on an exchange c. Stocks on Nasdaq d. Options with nine months or less to expiration

D. options with nine months or less to expiration Options expiring in nine months or less may not be bought on margin. They do not have loan value and, therefore, must be paid in full. However, credit may be extended to purchase LEAPS with more than nine months to expiration.

A customer, who is going on vacation, enters a GTC order to buy a stock. The order is executed. The customer tells the registered representative that he wants the stock but will not return in time to pay for the security by the payment date. The customer states he will send in a check a few days late. The registered representative should: a. Cancel the trade b. Pay for the stock himself with a principal's approval c. Transfer the order to a margin account d. Request an extension

D. request an extension The customer has indicated that he wants to purchase the stock but will not be able to pay for it in time because he will be on vacation. The order was a good-until-cancelled (GTC) order, so the customer did not know if and when the order would be executed. The reason for the late payment is due to the customer being on vacation. This is a valid reason, and the registered representative should request an extension.

Under Regulation T, which of the following securities is NOT marginable? a. Mutual fund shares held for more than 30 days b. Securities listed on the NYSE c. Nasdaq securities d. Securities quoted on the OTCBB

D. securities quoted on the OTCBB OTC equity securities, which are not listed on a national securities exchange such as the NYSE or Nasdaq, are not marginable. While Regulation T considers mutual funds marginable securities, the Securities Exchange Act of 1934 prohibits mutual fund dealers from extending credit on mutual fund shares until 30 days after their purchase.

A call option would be considered covered if it was written against all of the following choices, EXCEPT: a. The underlying common stock held in a cash account b. The underlying common stock held in a bank c. The underlying common stock held in a trust company d. The convertible bonds or convertible preferred stock of another corporation

D. the convertible bonds or convertible preferred stock of another corporation The option would be considered covered if written against all of the choices listed except the convertible preferred stock or convertible bonds of another corporation. A security that is convertible into common stock is acceptable, but it must be of the same corporation and be convertible immediately into at least the same number of shares represented by the options written.

When purchasing a new issue of stock in a cash account, when must payment be made under Reg. T? a. On the settlement date b. Two business days after the trade date c. When the securities are delivered d. Two business days after the settlement date

D. two business days after the settlement date Regulation T states that payment for a new issue in a cash account is due within two business days following the settlement date of the transaction. When buying shares of a new issue, an investor will receive a when-issued confirmation. Payment is due two business days following the date that the securities are ready for delivery.

Regulation T applies to: I. Cash accounts II. Margin accounts III. Commodity accounts IV. Municipal bond margin accounts

I and II only Regulation T of the Federal Reserve Board applies to cash accounts and margin accounts. Regulation T does not apply to commodity accounts or municipal bond margin accounts. For municipal bond accounts, industry rules require a margin deposit of 7% of the market value of the bond. Margin requirements for commodity accounts are set by the individual commodity exchanges.

An investor would like to trade exchange-traded funds (ETFs) in her brokerage account. Which TWO of the following statements are TRUE concerning purchasing and selling short ETF shares? I. Purchases may be executed in a cash or margin account II. Short sales may be executed in a cash or margin account III. Short sales may be executed only in a margin account IV. Leveraged ETFs may be purchased only in a margin account

I and III ETFs may be purchased in a cash or margin account. This applies to long positions in regular ETFs, inverse ETFs, or leveraged ETFs. If an investor sells short an ETF, this transaction must be executed in a margin account similar to selling short any equity security.

A customer has received a Regulation T margin call. He can meet the call by depositing in his account which TWO of the following choices? I. NYSE-listed stock with a market value equal to the amount of the call II. Cash equal to the amount of the call III. Nasdaq-listed stock with a loan value equal to the call IV. 50% of the cash amount of the call

II and III Stock listed on the NYSE or Nasdaq is marginable. The customer can meet the call by either depositing in his account cash equal to the amount of the call or marginable stock with a loan value equal to the dollar amount of the call. Choice (I) is incorrect because it indicates stock with a market value equal to the amount of the call can be deposited, when it should be stock with a loan value equal to the amount of the call. Choice (IV) is incorrect because it states 50% of the cash amount of the call is required, whereas 100% of the cash amount of the call is required.

Which TWO of the following statements are TRUE regarding the maintenance requirements for selling short stock that is trading at less than $5 per share? I. The maintenance requirement for shorting a stock at $2.00 per share is 100% of the market value II. The maintenance requirement for shorting a stock at $2.00 per share is $2.50 per share III. The maintenance requirement for shorting a stock at $4.00 per share is 100% of the market value IV. The maintenance requirement for shorting a stock at $4.00 per share is $2.50 per share

II and III The industry maintenance requirement, when shorting stock that is trading at less than $5.00 per share, is the greater of $2.50 per share or 100% of the market value. When shorting stock less than $2.50 per share, the maintenance requirement is $2.50 per share, while the maintenance requirement for shorting stocks between $2.50 and $5.00 per share is 100% of the market value.

A customer is interested in opening a margin account with a broker-dealer. Which of the following documents is NOT required to be completed? a. A new account form b. A loan consent agreement c. A margin customer agreement d. A hypothecation agreement

b. a loan consent agreement In order to open a new margin account, a customer must complete a new account form, a margin customer agreement, and a hypothecation agreement. However, the completion of a loan consent agreement is voluntary, not mandatory.

What is the maximum amount a customer may withdraw from a Special Memorandum Account? a. 2 times the SMA b. 3 times the SMA c. 25% of the SMA d. 100% of the SMA

d. 100% of the SMA The full amount or 100% of the SMA may be withdrawn. The buying power is 2 times the SMA.