Series 27: Special Purpose Credit

Taken from our Series 27 Online Guide

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Special Purpose Credit

A creditor may also extend the following types of credit with good faith margin:

  • • Credit to finance the purchase or sale of securities for prompt delivery if the credit is to be repaid upon completion of the transaction
  • • Credit to finance securities in transit or surrendered for transfer if the credit is to be repaid upon completion of the transaction
  • • Credit to enable a broker-dealer to pay for securities if the credit is to be repaid on the same day it is extended
  • • Credit to an exempted borrower (see Exempted Borrowers section)
  • • Credit to a member of a national securities exchange or registered broker-dealer to finance its activities as a market maker or specialist
  • • Credit to a member of a national securities exchange or registered broker-dealer to finance its activities as an underwriter
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Regulation T Credit Accounts

Type of Account

Characteristics

Margin Account
  • • Initial margin requirement is 50% equity for long equity securities and convertible debt
  • • Initial margin is 150% for short sales of equity securities

Special Memorandum Account (SMA)
  • • Defines a customer’s buying power with a margin account
  • • Customer can purchase two times amount in SMA

Cash Account
  • • Transactions must be paid in full within five business days of trade date
  • • Freeriding violations occur in this kind of account
  • • Covered calls and puts can be placed in thi