Examkin

Question

Difficulty: EasyMargin Accounts and Borrowing Requirements

An investor opens a margin account with a broker-dealer to purchase securities on credit. Which margin account document explicitly authorizes the broker-dealer to pledge the customer's securities as collateral to secure a bank loan?

  1. Hypothecation AgreementAnswer
  2. B
    Credit Agreement
  3. C
    Loan Consent Agreement
  4. D
    Risk Disclosure Statement

Answer

Hypothecation Agreement
The Hypothecation Agreement establishes the customer's agreement to pledge securities to the broker-dealer as collateral for margin loans and grants permission to the firm to rehypothecate those securities to financial institutions.

Step-by-Step Solution

1
Identify the purpose of each margin account agreement document.
The Hypothecation Agreement is the legal document that pledges the customer's purchased securities as collateral to the broker-dealer for borrowing funds, allowing the firm to rehypothecate them to banks.
Broker-dealers require collateral to extend margin credit to investors.

Key Concept

Margin Account Documentation and Hypothecation Agreement
Rate this question

Topics

Margin Accounts and Borrowing Requirements