The terms used in this part
have the meanings given them in section 3(a) of the act or as defined
in this section as follows:
Affiliated corporation means a corporation of which all the common stock is owned directly
or indirectly by the firm or general partners and employees of the
firm, or by the corporation or holders of the controlling stock and
employees of the corporation, and the affiliation has been approved
by the creditor’s examining authority.
Cash
equivalent means securities issued or guaranteed by the United
States or its agencies, negotiable bank certificates of deposit, banker’s
acceptances issued by banking institutions in the United States and
payable in the United States, or money market mutual funds.
Covered option transaction means any transaction
involving options or warrants in which the customer’s risk is limited
and all elements of the transaction are subject to contemporaneous
exercise if—
(1) the amount at risk
is held in the account in cash, cash equivalents, or via an escrow
receipt; and
(2) the
transaction is eligible for the cash account by the rules of the registered
national securities exchange authorized to trade the option or warrant
or by the rules of the creditor’s examining authority in the case
of an unregistered option, provided that all such rules have been
approved or amended by the SEC.
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Credit balance means the cash amount due the customer in a margin account after
debiting amounts transferred to the special memorandum account.
Creditor means any broker or dealer (as defined
in sections 3(a)(4) and 3(a)(5) of the act), any member of a national
securities exchange, or any person associated with a broker or dealer
(as defined in section 3(a)(18) of the act), except for business entities
controlling or under common control with the creditor.
Current market value of—
(1) a security means—
(i) throughout
the day of the purchase or sale of a security, the security’s total
cost of purchase or the net proceeds of its sale including any commissions
charged; or
(ii)
at any other time, the closing sale price of the security on the preceding
business day, as shown by any regularly published reporting or quotation
service. If there is no closing sale price, the creditor may use any
reasonable estimate of the market value of the security as of the
close of business on the preceding business day.
(2) any other collateral
means a value determined by any reasonable method.
Customer excludes an exempted borrower and includes—
(1) any person or persons
acting jointly—
(i) to or for whom a creditor extends,
arranges, or maintains any credit; or
(ii) who would be considered a customer
of the creditor according to the ordinary usage of the trade;
(2) any partner in a firm
who would be considered a customer of the firm absent the partnership
relationship; and
(3)
any joint venture in which a creditor participates and which would
be considered a customer of the creditor if the creditor were not
a participant.
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Debit balance means the cash amount owed to the creditor in a margin account after
debiting amounts transferred to the special memorandum account.
Delivery against payment, payment against delivery, or a COD transaction refers to an arrangement under which
a creditor and a customer agree that the creditor will deliver to,
or accept from, the customer, or the customer’s agent, a security
against full payment of the purchase price.
Equity means the total current market value of security positions
held in the margin account plus any credit balance less the debit
balance in the margin account.
Escrow agreement means any agreement issued in connection with a call or put option
under which a bank or any person designated as a control location
under paragraph (c) of SEC Rule 15c3-3 (17 CFR 240.15c3-3(c)), holding
the underlying asset or required cash or cash equivalents, is obligated
to deliver to the creditor (in the case of a call option) or accept
from the creditor (in the case of a put option) the underlying asset
or required cash or cash equivalent against payment of the exercise
price upon exercise of the call or put.
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Examining
authority means—
(1) the national securities exchange or
national securities association of which a creditor is a member; or
(2) if a member of more than
one self-regulatory organization, the organization designated by the
SEC as the examining authority for the creditor.
Exempted borrower means a member of a national
securities exchange or a registered broker or dealer, a substantial
portion of whose business consists of transactions with persons other
than brokers or dealers, and includes a borrower who—
(1) maintains at least 1000 active accounts
on an annual basis for persons other than brokers, dealers, and persons
associated with a broker or dealer;
(2) earns at least $10 million in gross
revenues on an annual basis from transactions with persons other than
brokers, dealers, and persons associated with a broker or dealer;
or
(3) earns at least
10 percent of its gross revenues on an annual basis from transactions
with persons other than brokers, dealers, and persons associated with
a broker or dealer.
Exempted securities
mutual fund means any security issued by an investment company
registered under section 8 of the Investment Company Act of 1940 (15
USC 80a-8), provided the company has at least 95 percent of its assets
continuously invested in exempt securities (as defined in section
3(a)(12) of the act).
5-395.1
Foreign margin stock means a foreign security that
is an equity security that—
(1) appears on the Board’s periodically
published list of foreign margin stocks; or
(2) is deemed to have a “ready market”
under SEC Rule 15c3-1 (17 CFR 240.15c3-1) or a “no-action” position
issued thereunder.
Foreign person means a person other than a United States person as defined in section
7(f) of the act.
Foreign security means
a security issued in a jurisdiction other than the United States.
Good faith with respect to—
(1) margin means the amount of margin which
a creditor would require in exercising sound credit judgment;
(2) making a determination
or accepting a statement concerning a borrower means that the creditor
is alert to the circumstances surrounding the credit, and if in possession
of information that would cause a prudent person not to make the determination
or accept the notice or certification without inquiry, investigates
and is satisfied that it is correct.
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Margin call means a demand by a creditor to a customer for
a deposit of additional cash or securities to eliminate or reduce
a margin deficiency as required under this part.
Margin deficiency means the amount by which the required margin
exceeds the equity in the margin account.
Margin
equity security means a margin security that is an equity security
(as defined in seciton 3(a)(11) of the act).
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Margin excess means the amount by which the equity
in the margin account exceeds the required margin. When the margin
excess is represented by securities, the current value of the securities
is subject to the percentages set forth in section 220.12 (the supplement).
Margin security means—
(1) any security registered or having unlisted
trading privileges on a national securities exchange;
(2) after January 1, 1999,
any security listed on the Nasdaq Stock Market;
(3) any nonequity security;
(4) any security issued by
either an open-end investment company or unit investment trust which
is registered under section 8 of the Investment Company Act of 1940
(15 USC 80a-8);
(5)
any foreign margin stock;
(6) any debt security convertible into a margin security;
(7) until January 1, 1999,
any OTC margin stock; or
(8) until January 1, 1999, any OTC security designated as qualified
for trading in the national market system under a designation plan
approved by the Securities and Exchange Commission (NMS security).
Money market mutual fund means
any security issued by an investment company registered under section
8 of the Investment Company Act of 1940 (15 USC 80a-8) that is considered
a money market fund under SEC Rule 2a-7 (17 CFR 270.2a-7).
Nonequity security means a security that is not
an equity security (as defined in section 3(a)(11) of the act).
Nonexempted security means any security other
than an exempted security (as defined in section 3(a)(12) of the act).
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OTC margin stock means any equity security traded
over the counter that the Board has determined has the degree of national
investor interest, the depth and breadth of market, the availability
of information respecting the security and its issuer, and the character
and permanence of the issuer to warrant being treated like an equity
security traded on a national securities exchange. An OTC stock is
not considered to be an OTC margin stock unless it appears on the
Board’s periodically published list of OTC margin stocks.
5-400
Payment period means the number of business days in the standard
securities-settlement cycle in the United States, as defined in paragraph
(a) of SEC Rule 15c6-1 (17 CFR 240.15c6-1(a)), plus two business days.
Purpose credit means credit for the purpose
of—
(1) buying, carrying, or trading
in securities; or
(2)
buying or carrying any part of an investment-contract security which
shall be deemed credit for the purpose of buying or carrying the entire
security.
5-401
Short call or short put means a call option or
a put option that is issued, endorsed, or guaranteed in or for an
account.
(1) A short call that
is not cash-settled obligates the customer to sell the underlying
asset at the exercise price upon receipt of a valid exercise notice
or as otherwise required by the option contract.
(2) A short put that is not cash-settled
obligates the customer to purchase the underlying asset at the exercise
price upon receipt of a valid exercise notice or as otherwise required
by the option contract.
(3) A short call or a short put that is cash-settled obligates the
customer to pay the holder of an in-the-money long put or long call
who has, or has been deemed to have, exercised the option the cash
difference between the exercise price and the current assigned value
of the option as established by the option contract.
5-402
Underlying asset means—
(1) the security or other asset that will
be delivered upon exercise of an option; or
(2) in the case of a cash-settled option,
the securities or other assets which comprise the index or other measure
from which the option’s value is derived.
