Permissible Use of Customers' Securities
Chapters in this video
- 0:00 The customer securities lending requirement and cast of characters
- 1:19 Margin securities vs. fully paid: the regulatory divide and exam trap
- 2:52 The 30-day FINRA notice gating requirement
- 3:51 Appropriateness review beyond generic suitability
- 4:56 The SIPA/SIPC gap and written disclosure requirements
- 6:10 Daily mark-to-market collateral with Apple example
- 7:22 The customer asset segregation puzzle and rapid-fire recap
What this video covers
- The one-time written authorization for margin securities via the hypothecation clause in the standard margin agreement, and why this does NOT extend to fully paid securities
- The four heightened conditions required to lend fully paid or excess margin securities: 30-day advance Financial Industry Regulatory Authority (FINRA) notice, appropriateness review, written disclosure, and daily-marked collateral
- Why the 30-day FINRA notice is a gating requirement that runs from the regulator's receipt of notice, not from the customer's signature
- What the appropriateness review demands beyond generic suitability, including reasonable basis for income-versus-risk balance and customer understanding of protection limits
- The Securities Investor Protection Act (SIPA) / Securities Investor Protection Corporation (SIPC) gap: loaned securities are not SIPC-protected and rely solely on contractual collateral
- The content and form requirements for written customer disclosure, including standalone prominence, voting rights loss, cash-in-lieu dividends, and loss of qualified dividend tax treatment
- The daily mark-to-market collateral requirement: cash or qualified securities at least equal to market value, with same-day adjustment for price movements
Read the full lesson, free
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