Series 7 Exam Question 201: Answer and Explanation

Question: 201

Which of the following are needed to open a margin account for a corporation?

I. Corporate charter and resolution

II. New account form

III. Hypothecation agreement

IV. Credit agreement

• A. I and II
• B. I and IV
• C. III and IV
• D. I, II, III, and IV

Correct Answer: D

Explanation:

D. When a corporation opens a margin account, the corporation has to provide a corporate charter, which needs to say that the corporation can buy securities on margin, and a corporate resolution, which says who has the trading authority for the account. A new account form is always needed for any type of account. The corporation also needs a hypothecation agreement, which allows the broker-dealer to hold the securities in street name so that they can be used as collateral for a loan. In addition, the corporation needs a credit agreement, which sets the terms for the loan.