By signing the client`s credit authorization form, it authorizes the merchant broker to lend assets from the client`s account to the client`s receivable balance. If you see a question about your review related to the credit agreement, it will most likely test the fact that it is the only part of the margin agreement that does not need to be signed. When opening a margin account, debtors must sign a margin agreement. This agreement stipulates that the customer complies with the rules and regulations of the Federal Reserve Board, the OAR and DriveWealth. The margin agreement will include three separate agreements: the credit agreement, the mortgage contract and the credit approval contract. Credit AgreementBy the signing of the credit agreement, customers recognize that they borrow products from the company and are responsible for paying interest and repaying the loan amount. The agreement reveals all the credit conditions. The interest rate is variable and is usually linked to the Call Loan Rate broker. DriveWealth calculates a Fed Funds variable interest rate plus 400 basis points. Margin interest is charged daily and is booked monthly into the debitor account. In the United States, interest paid into a margin account is generally tax deductible from capital income. Mortgage AgreementThe mortgage agreement stipulates that the client credits his securities to the brokerage company (in mortgage) and gives the company the right to re-mortgage (as a pawn) the securities to guarantee the loan from a bank. Securities held in a margin account are held in the street name in the name of DriveWealth.
The securities are held in the street name, so the brokerage company can sell them if the customer does not meet a margin call. DriveWealth is the nominal owner (i.e. only on behalf of the owner). The stock belongs to the customer who is the economic beneficiary. Credit Acceptance AgreementThe Approval Agreement gives DriveWealth the right to lend customer securities. Dealers generally lend these securities to clients who wish to lend shares for short selling. Under current rules, the customer is not required to sign this contract. When a margina account is opened for a customer, DriveWealth provides the customer with a list of the amount of interest that is calculated and the method used to calculate interest. Advertising: However, if the client decides not to sign a credit contract, the broker may refuse to open a margin account, forcing the client to relocate his business.
For a broker-trader, a client`s credit contract would give him more flexibility in billing clients` borderline accounts. The broker has the right to lend assets to many account holders in order to obtain sufficient shares to facilitate the short sale of other clients. If a broker has agreed, the broker can lend securities to the account.