4.4.1.2.2.1. Opening a Margin Account
Prior to opening a margin account, the customer must sign a margin agreement. The margin agreement sets the terms and conditions for enabling the customer to borrow from the brokerage to buy securities. It identifies how much collateral will be placed in the margin account and the interest rate on the margin loan, and it determines whether the broker can pledge the securities on margin as collateral for its own borrowing.
The agreement has three parts:
1. Hypothecation agreement—a contract between the broker-dealer and the customer, whereby the broker-dealer agrees to provide a loan and the customer allows his securities to be used as collateral agains