Margin balance question and 15c3-3

Discussion in 'Trading' started by noob_trad3r, Oct 19, 2009.

  1. I am using 2% of my margin capacity.

    According to SEC, the broker can only loan out a max of 140% of the loan of my equity correct?

    For example

    if I borrow 1000 on margin

    they can only take out my my customer box 2,400 dollars worth of stock and stick it into the broker box to commingle with other stocks to loan out right?

    I just want to limit my counter party risk (ie broker fails) and I lose all my stocks.
  2. Wow none of the pros know the answer to this?
  3. You are correct, the math is wrong.

    1000 margin debit = up to 1400worth of securities that can be hypothecated.

    Your worst case scenario would be the following.

    You own 10,000 dollars in securities.

    You borrow 1000 dollars to buy new securities.

    Broker can take up to 1,400 dollars worth of securities from your possession(customer control location ie: "The box") as collateral and lend it out to short sellers,banks (For loan collateral etc..)

    So if the Broker fails, you become a creditor for that amount and the SIPC returns to you the remainder of your portfolio securities.

    SIPC (8600 worth of securities returned)
    Creditor (1400 worth of securities)

    So when you borrow on margin you are losing a portion of you securities from SIPC protection and exposing it to counterparty risk.

    SIPC also covers Ponzi schemes as well (ie Madoff Ponzi)
  4. When calculating the margin balance is it true that one must include net cash held at the Option Clearing Corporation for open option positions?

    Hence, your margin account might show a credit (+) margin balance, but when taking into consideration cash reserved for option positions you in fact have a debit (-) margin balance.