SIAA Margin Lending key terms

The Federal Reserve rule that sets initial margin requirements for securities purchases, generally requiring an investor to deposit at least half of the purchase price and limiting how much credit a broker-dealer may extend.

The minimum equity an investor must contribute when first buying securities on credit, currently 50 percent of the purchase price under Regulation T. It applies at the moment the trade is executed, not later.

The minimum equity that must remain in a margin account after the initial purchase, set by FINRA at 25 percent of the long market value for most securities, though firms often require more for volatile or concentrated positions.

The FINRA rule governing margin requirements, including maintenance levels, margin calls, payment deadlines, and special provisions for concentrated or non-diversified accounts. It supplements rather than replaces Regulation T.

Any arrangement in which a broker-dealer permits a customer to defer payment for securities, including margin loans, free-riding, and certain cash account violations. Regulation T governs when such credit is permitted.

The written contract signed by the customer and the broker-dealer that establishes the terms of the margin relationship, including the pledge of securities as collateral and the firm's right to liquidate.

The pledging of customer securities as collateral for a margin loan. Firms may rehypothecate customer margin securities to the extent permitted by the agreement and rules, subject to limits on commingling.

An optional document in which the customer authorizes the broker-dealer to lend the customer's margin securities to other parties, typically for short sales. Refusing to sign does not prevent opening a margin account.

A document describing the risks of trading on margin, including the potential for losses exceeding the deposit and the possibility of forced liquidation without prior notice, which the customer must acknowledge before trading.

A customer who executes four or more day trades within five business days in a margin account, provided the trades exceed six percent of total trades. Such customers must maintain at least $25,000 in equity.

The maximum dollar amount of securities a customer can purchase, calculated from account equity and the applicable margin percentage. In a margin account it generally equals equity divided by the initial requirement.

The amount the customer owes the broker-dealer in a margin account, equal to the cost of securities purchased on credit plus any accrued interest and fees, reduced by cash deposits and sale proceeds.

The customer's net ownership interest in a margin account, calculated as the long market value minus the debit balance. Equity rises and falls with market prices and determines whether a margin call occurs.

A record of excess equity generated when a margin account's value exceeds the initial requirement. SMA can be used to buy securities or withdraw cash without creating additional margin debt.

The amount by which a margin account's equity exceeds the current maintenance requirement. Excess equity above the initial requirement creates SMA, which can be used for new purchases or withdrawals.

The finance charge the broker-dealer assesses on the debit balance, typically calculated daily and posted monthly. Rates vary by firm and may be tiered based on the size of the debit.

Securities eligible to be pledged as collateral in a margin account, generally including listed stocks, many bonds, and certain mutual funds. Eligibility depends on price, liquidity, and regulatory approval.

Securities that cannot be used as collateral or bought on credit, such as new issues during the seasoning period, penny stocks, and certain direct participation programs. They must be paid for in full.

A situation in which a large share of a margin account's value is held in a single security or a small group of related securities. Firms typically impose higher margin requirements to offset the added risk.

A broker-dealer's own margin policy, which may be stricter than Regulation T or FINRA rules. Firms use house requirements to manage risk from volatile, illiquid, or concentrated positions.

The replacement of collateral in a margin account with different securities of equal or greater value. The substitute must be marginable, and the account must remain in compliance after the swap.

The sale of securities the seller does not own, borrowed from a broker-dealer in anticipation of buying them back later at a lower price. Proceeds are held as collateral for the loan.

A margin account reflecting a short position, where the credit balance includes proceeds of the short sale plus the required margin deposit. Equity equals credit balance minus the current market value.

A rapid rise in a security's price that forces short sellers to buy shares to close positions, pushing the price higher and triggering further covering. Margin calls can accelerate the cycle.

The obligation before executing a short sale to identify borrowable shares or reasonably believe they can be borrowed, documented to prevent naked short selling and fails to deliver.

A demand by the broker-dealer for additional cash or securities when account equity falls below the maintenance requirement. Customers typically have a limited period to meet the call before liquidation.

The forced sale of securities in a margin account to restore compliance after a margin call or agreement default. Firms may liquidate without prior notice and are not required to seek the best price.

A demand for additional funds based on the firm's own stricter maintenance requirements rather than regulatory minimums. House calls are enforceable under the margin agreement even when no regulatory call exists.

The act of depositing cash or eligible securities to satisfy a margin call or to close out a short position by purchasing the borrowed shares. Timely coverage prevents forced liquidation.

The collateral a customer must post for uncovered or spread option positions, calculated under FINRA and exchange rules using formulas that consider strike price, premium, and underlying volatility.

A call option written against shares the writer already owns. Because the shares secure the obligation, the position generally requires no additional margin beyond the stock's own requirement.

A position combining long and short options of the same type on the same underlying security. Margin treatment depends on whether the spread is debit or credit and on the relationship between strike prices.

An alternative margining method that estimates risk across an entire portfolio using scenario analysis rather than fixed percentages. It is available only to qualifying customers approved by the firm.

The requirement that fully paid and excess margin securities be held separately from firm assets, protecting customers if the broker-dealer fails. Only securities needed to collateralize debit balances may be pledged.

The practice of a broker-dealer re-pledging customer margin securities as collateral for its own borrowings. It is limited by rules capping the amount that may be re-pledged relative to customer debits.

Buying securities in a cash account and selling them before paying for the purchase, using sale proceeds to cover the cost. It is prohibited, and repeated violations can lead to account restrictions.

The date by which payment for purchased securities must be made and delivery completed, generally one business day after the trade for most U.S. securities. Margin calls and cash account deadlines reference this date.