General Securities Sales Supervisor (Series10) Practice Exam

Which documentation is REQUIRED for opening a margin account?

1. Hypothecation Agreement and Interest Charge Disclosure Form

2. Loan Consent Agreement and New Account Form

3. Hypothecation Agreement, Interest Charge Disclosure Form, and New Account Form

4. All of the above

The correct answer is: Hypothecation Agreement, Interest Charge Disclosure Form, and New Account Form

To open a margin account, specific documentation is mandated to ensure compliance with regulatory requirements and to inform the customer of the terms and conditions involved. The Hypothecation Agreement is crucial as it allows the broker-dealer to pledge the securities in the margin account as collateral for margin loans. This agreement details how securities may be used by the broker for borrowing purposes. The Interest Charge Disclosure Form is also required since margin accounts incur interest charges on the borrowed funds. This form lays out the specifics regarding how interest is calculated, the applicable rates, and the timing of interest payments, ensuring that the customer understands the financial obligations associated with maintaining a margin account. Lastly, the New Account Form is necessary to gather all pertinent information about the customer, including financial situation, investment objectives, and other relevant data that the firm must have to appropriately manage the account. These documents collectively provide the framework for the operation of a margin account, helping to protect both the client and the broker-dealer from misunderstandings regarding use of credit in the account. It is important to note that while certain firms may have their own internal requirements, the combination of these three documents covers the essential legal and financial considerations for opening a margin account.