SIE Exam Question 303: Answer and Explanation

Question: 303

When opening a margin account, the agreement that customers sign to pledge their securities as collateral for a loan from the broker-dealer is the

• A. hypothecation agreement.
• B. loan agreement.
• C. re-hypothecation agreement.
• D. margin agreement.

Correct Answer: A

Explanation:

A - Customers that open margin accounts must sign a hypothecation agreement to pledge their securities as collateral for loans from the broker-dealer for margin account purchases. The broker-dealer may then rehypothecate the securities to the bank, meaning that they are pledged to the bank as collateral for loans to the broker-dealer for lending to customers.