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Margin Account Disclosure

Margin Account Q&A
With a margin account, you can borrow money from your brokerage account to purchase securities. The portion of the purchase price that you must deposit is called the initial margin requirement and is your initial equity or value in your account. The loan is secured by the securities you purchase. Buying on margin is like taking out a loan. When you buy on margin, you must repay both the amount you borrowed plus interest, even if you lose money on your investment.

Margin may be a useful tool in your investment strategy, but purchasing securities on margin involves significant risk and is not appropriate for everyone.

The following Q&A will address basic questions about the advantages and disadvantages of borrowing on margin. For more detailed information, read the Margin Risk Disclosure Statement below

You may also wish to view the Purchasing on Margin section of the FINRA Investor Education website and the Margin information on the SEC website.

Q: What does it mean when I purchase securities on margin?
A: A margin account allows you to increase your investment purchasing power by borrowing money. When you borrow on margin, you use the marketable securities in your account as collateral for a loan.

Q. What is a margin call?
A. If the securities in your account decline in value, so will the value of the collateral supporting your loan. If the value of your securities declines past a certain amount, we may issue a margin call to restore the value of your account. Whether we issue a margin call or not, we have the right to liquidate securities in your account in order to meet our equity requirements for customer margin accounts. We have the right to do this without contacting you first. If we do issue a margin call, we may give you a limited time to satisfy the call. If the market is unusually volatile, the amount of time you have to satisfy the call may be reduced from the amount of time normally allowed.

Q: How do I know if a margin account is for me?
A: It is essential that you fully understand how a margin account works. Familiarize yourself with our margin policies and practices as described on this page. You can also call one of our Call Center Representatives at (800) 874-6910 if you have additional questions or concerns.

Unless you are completely comfortable borrowing on margin, you should consider limiting your purchases to a cash account that requires you to pay for securities purchases in full. Cash accounts are not subject to margin calls.

Q: Why would someone choose a 401(k) instead of a 403(b)?
A: Investment choices in the 403(b) plan are limited to annuities (fixed or variable) or mutual funds that are held in a Custodial Account. In a 401(k) plan, you have a wider choice of investment options, such as publicly traded stocks and bonds. Most plan sponsors are generally limiting investments to mutual funds or annuities options.

Q: What are the benefits of borrowing on margin?
A: Margin borrowing gives you leverage by allowing you to purchase additional securities using your existing assets as collateral for the loan. It allows you to respond to market changes and react quickly to new investment opportunities that may arise. In addition, you may be protected against late payments for trades. If we do not receive your payment for the purchase of securities, borrowing against the fully paid and marginable securities in your account may cover payment. And, margin interest rates may be comparable to or lower than the prime interest rate, which is the rate offered by banks to their best business customers. The actual interest rate charged will be determined by the value of cash and securities in your account. Finally, using a margin account lets you borrow without a preset repayment plan unless there is a margin call. Interest on the outstanding balance is due and posted to your account monthly.

Q: How does margin borrowing work?
A: The Federal Reserve sets the policies that govern borrowing on margin. You may obtain a loan for up to 50% of the market value of many stocks you may hold in your PlanMember Securities/Pershing Brokerage Services account. For example, if you have $10,000 of fully-paid marginable stocks in your account, you may borrow $5,000, or up to 50% of their value. Then you may use two times the amount that you borrowed ($5,000 x 2 = $10,000) to purchase additional marginable securities.

Q: Which securities are eligible as margin borrowing collateral?
A: All stocks listed on the New York Stock Exchange and other major U.S. exchanges and trading for $5.00 or more are eligible, as are most NASDAQ-traded securities. Treasury, corporate, municipal, and government securities are eligible as well.

Q: Which securities are NOT eligible as margin borrowing collateral?
A: IPOs are not marginable for 30 days, nor are mutual funds held less than 30 days, securities held in a retirement account, securities held in a custodial account, or CDs. Options have no loan value for margin purposes.

Margin Risk Disclosure Statement
Q: What are the risks involved with margin borrowing?
A: There are a number of risks that you need to consider in deciding to trade securities on margin. These include:

  • You may be forced to sell securities in your accounts to meet a margin call. If the equity in your account falls below the maintenance margin requirements under the law or higher "house" requirements (if applicable), we can sell the securities in your accounts to cover the margin deficiency. You will also be responsible for any shortfall in the accounts after such a sale.
  • Securities in your account can be sold without contacting you. Some investors mistakenly believe that they must be contacted first for a margin call to be valid. This is not the case. We will attempt to notify customers about impending margin calls, but are not required to do so. Even if you are contacted and provided with a specific date to meet a margin call, we may decide to sell some or all of your securities before that date without any further notice to you. We may, for example, take this action because the market value of your securities has continued to decline in value.
  • You are not entitled to choose which securities or other assets in your accounts are sold. There is no provision in the margin rules that gives you the right to control liquidation decisions. We may decide to sell any of the securities that are collateral for your margin loan to protect our interests.
  • The "house" maintenance requirements can increase at any time and without advance notice. These changes often take effect immediately and may cause a “house” call. If you don't satisfy this call, we may liquidate or sell securities in your accounts.
  • You are not entitled to an extension of time on a margin call. While an extension of time to meet a margin call may be available to you under certain conditions, you do not have a right to the extension.
  • You can lose more money than you deposit in a margin account. A decline in the value of the securities you purchased on margin may require you to provide additional money to your account to avoid the forced sale of those securities or other securities in your accounts.

For additional information, please see: FINRA - Investor Information - Margin Information

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6187 Carpinteria Ave. • Carpinteria, CA • 93013 • (800) 874-6910
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