General Securities Sales Supervisor (Series10) Practice Exam

What document must a broker-dealer have a customer sign to lend fully paid securities?

1. Hypothecation agreement

2. Stock power

3. Margin agreement

4. Separate loan consent agreement

The correct answer is: Separate loan consent agreement

A broker-dealer must have a customer sign a separate loan consent agreement to lend fully paid securities. This document specifically grants the broker-dealer permission to lend out the customer’s securities, which is a practice often utilized to facilitate short sales and other transactions where the securities may be utilized by another party. The separate loan consent agreement is essential because it ensures that the customer is fully informed of the broker-dealer's intent to lend their securities and agrees to the terms under which this will occur. This consent is crucial in maintaining transparency and reducing the risk of disputes regarding the ownership and use of the securities. Other documents, such as a hypothecation agreement or a margin agreement, relate to different aspects of lending and borrowing within brokerage accounts but do not specifically address the process of lending fully paid securities in this manner. A stock power, while associated with transferring ownership of securities, does not serve the purpose of permitting the borrowing or lending of securities. Thus, the separate loan consent agreement is the correct answer as it directly pertains to the customer's authorization for their fully paid securities to be lent by the broker-dealer.