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Margin Terms and Definitions for Physician Investors

By Staff Reporters

• A Margin Account is opened for the purposes of engaging in securities transactions using credit extended by the brokerage firm. 
• Hypothecation is the pledging of securities as collateral for a margin loan. Before a brokerage firm can lend any money whatsoever, the law requires the loan to be secured or collateralized. A doctor desiring the loan hypothecates the stock in order to obtain the financing in the margin account.
• Rehypothecation is a brokerage firm’s pledge of a doctor’s securities to secure loans from a bank. These loans help the brokerage industry to afford to carry margin accounts for their doctor clients. Legally, the maximum dollar amount of securities that may be re-hypothecated for carrying a margin account is typically 140% of the loan.
• Street Name Registration occurs so a broker may be in a position to liquidate the loan collateral quickly, since the securities are registered in the name of the brokerage firm, or its nominee.
• Beneficial Owner represents the healthcare professional whose securities are registered in street name remains the actual owner of all benefits of ownership, such as dividends or interest, capital appreciation, voting rights, pre-emptive rights, and, of course, the right to sellout the position and liquidate the account in whole or in part. Remember, though, the securities are actually in the name of the brokerage firm. 
• Commingling is an abuse that occurs when a brokerage firm mixes, or combines, its own securities with those of its clients to obtain loans and other benefits that go beyond what is fair and reasonable according to the law. This is an illegal practice.
• Debit Balance is the amount of the loan from the brokerage firm, to the doctor, to finance the purchase of margin able securities.

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Filed under: Glossary Terms, Health Economics, Health Insurance, Healthcare Finance, Investing | Tagged: Brokerage Loans, Hypothecation, margin account, Rehypothecation, Street Name Registration |