SIAA Margin Lending flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Reg T initial margin

Federal Reserve rule requiring 50% of the purchase price of marginable securities to be deposited by the customer at the time of purchase, subject to change by the FRB.

FINRA maintenance margin

Minimum equity requirement for long margin positions, generally 25% of market value for stock, with higher house requirements permitted.

Payment period

The period, generally settlement date, within which a customer must deposit the required margin after a purchase; failure may result in cancellation and a freeze.

Pattern day trader

A margin customer executing four or more day trades in five business days where day trades exceed six percent of activity; requires $25,000 minimum equity.

Margin disclosure statement

Document delivered at or before margin account opening and annually thereafter, describing borrowing risks, interest charges, and forced liquidation.

Hypothecation clause

Provision in the margin agreement authorizing the firm to pledge customer securities as collateral, generally up to 140% of the debit balance.

Loan consent

Optional agreement provision permitting the firm to lend customer margin securities to other customers or firms; without it, securities may be pledged but not lent.

Margin account approval

Requirement that a designated principal approve a margin account before the first transaction, documenting the approval and its basis in the account records.

Equity formula

Long market value minus debit balance equals equity; equity divided by long market value gives the equity percentage used in maintenance tests.

Buying power at 50%

With Reg T initial margin of 50%, buying power equals equity divided by 0.50, or twice the customer's equity.

Special Memorandum Account

A memorandum account recording excess equity available for borrowing without new deposits; it does not represent cash and is not reduced by market declines.

SMA credit on sale

When securities are sold, SMA increases by the Reg T excess, reflecting the buying power released by the sale.

Debit balance

The amount owed by the customer to the firm, increased by purchases, interest, commissions, and fees, and reduced by deposits and sales proceeds.

Eligible margin stock

Exchange-listed, Nasdaq, and approved OTC securities that may be pledged as collateral; unlisted and unregistered securities are generally ineligible.

Concentration requirement

Higher maintenance requirements imposed when a position in one security exceeds specified percentages of outstanding shares or account equity.

Non-marginable security

A security that cannot serve as collateral for a margin loan and must be held fully paid in a cash or margin account.

Collateral substitution

Replacing pledged securities with other collateral while maintaining required margin equity; withdrawals require sufficient excess equity.

Short sale margin

Reg T requires 50% of the short sale proceeds as initial margin; proceeds are held as collateral for the borrowed shares.

Short maintenance

FINRA requires short account equity of at least 30% of the current market value of the shorted security.

Short account equity

Credit balance minus current market value of the shorted security; a rising price reduces equity and may trigger a call.

Locate requirement

Reg SHO rule requiring the firm to borrow or locate shares before executing a short sale to prevent naked short selling.

Maintenance call

A demand for additional funds or securities when equity falls below the maintenance requirement, restoring the account to compliance.

House call

A call issued under the firm's stricter requirements, often with a shorter deadline than FINRA rules, and enforceable through liquidation.

Forced liquidation

Sale of securities by the firm to restore margin compliance, which may occur without prior notice when the account falls below maintenance.

Restricted account

An account with repeated margin calls or violations, subject to higher requirements or limited to cash-only transactions.

Long option margin

Listed options with more than nine months to expiration may be marginable at 75% of market value; shorter-dated options are generally non-marginable.

Short option margin

Margin equal to the premium plus a percentage of the underlying value minus the out-of-the-money amount, subject to a minimum requirement.

Covered call

A short call against stock owned in the account; the stock serves as collateral and no additional margin is required.

Spread margin

For defined-risk spreads, margin is generally the maximum loss between strikes, with long options offsetting short options in the same class.

Record retention

FINRA Rule 4511 requires preservation of books and records for at least six years, with the most recent two years readily accessible.

Written supervisory procedures

Firm policies required by FINRA Rule 3110 covering review of margin accounts, calls, concentration, and liquidation decisions.

Margin call records

Documentation of calls, notices, extensions, and liquidations retained and available to regulators on request.

Annual compliance review

Periodic testing of margin calculations, SMA accuracy, disclosure delivery, and interest charges to confirm adherence to rules and procedures.