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Question

Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opening a margin account wants to grant the broker-dealer permission to lend securities held in the account to third parties for short selling. Which margin document must the customer sign to authorize this specific activity?

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

Answer

Loan Consent Agreement
The Loan Consent Agreement is an optional agreement that grants the broker-dealer permission to lend securities held in the customer's margin account to third parties, typically for short selling purposes.

Step-by-Step Solution

1
Identify the function of each standard margin account document required at account opening.
The three standard components of a margin agreement are the Credit Agreement, Hypothecation Agreement, and Loan Consent Agreement.
Understanding the distinction between mandatory agreements (Credit and Hypothecation) and optional agreements (Loan Consent) is required by FINRA rules.
2
Match the specific authorization requested (lending customer securities to third parties for short sales) to the correct agreement.
The Loan Consent Agreement specifically authorizes the firm to lend securities.
Signing the Loan Consent Agreement is optional for the customer, unlike the mandatory Credit and Hypothecation Agreements.

Key Concept

Margin Account Documentation Requirements
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Topics

Margin Accounts and Borrowing Requirements