Customer Agreements

The whole unit on one sheet: what gets documented, who signs, the margin and options timing rules, and the two prohibited representations.

What Does Opening a New Account Require?

• FINRA's account-information rule requires name, residence, legal age, the responsible associated person (non-institutional accounts only), and, for entities, authorized representatives. An SEC rule adds a fuller financial profile where the firm makes suitability determinations.
• A principal of the firm must approve every new account. Approval is supervisory, not something the customer performs.
• A cash account needs no customer signature to open; the firm opens and trades it on the gathered information plus principal approval.
• For non-institutional accounts, the firm makes reasonable efforts to obtain tax ID, occupation, and employer before the initial transaction settles, not necessarily before opening.
• An institutional account is a bank, insurer, registered investment company, registered adviser, or any person with at least $50 million in total assets, and it needs no TCP.
• The firm furnishes a copy of the record within 30 days of opening, every 36 months after, and within 30 days of notice of a change in investment objectives.
• The firm makes a reasonable effort to obtain a trusted contact person, a natural person 18 or older, for each non-institutional account. The customer may decline and still open it.

What Does a Margin Account Require?

• The customer signs the margin agreement, promptly after the first margin transaction. The agreement does not have to precede that trade.
• The credit agreement (loan terms) and hypothecation agreement (pledging collateral) are required; the loan consent agreement is optional.
• The firm delivers a margin risk disclosure statement at or before opening: the customer can lose more than deposited, the firm can sell without contacting them, and requirements can change anytime.
• Regulation T (Federal Reserve Board) sets initial margin at 50%. FINRA sets maintenance margin at 25% long, and short at the greater of $5/share or 30% of CMV (stock at or above $5), or $2.50/share or 100% of CMV (stock under $5), plus a $2,000 minimum equity floor.
• A missed margin call lets the firm liquidate without notice. Rehypothecation is capped at 140% of the debit balance.

What Does an Options Account Require?

• Deliver the Options Disclosure Document (ODD), published by the OCC, at or before options approval.
• For a natural person, the firm exercises due diligence on objectives, employment, net worth, liquid net worth, marital status, age, and experience.
• A qualified principal, ordinarily a Registered Options Principal (ROP), must approve the account before the first options trade. A non-qualified branch manager may approve initially, but an ROP or Limited Principal-General Securities Sales Supervisor must confirm within 10 business days.
• Two separate 15-day clocks start at approval: the customer signs and returns the options agreement, and the firm sends background and financial information for verification (deemed verified absent contrary notice).
• Pricing shorthand: premium = intrinsic value + time value, intrinsic value never below zero, calls in-the-money above the strike and puts below.

Which One-Liners Win Points?

• Registration becomes effective; it is never approved. An agent may truthfully say a registration is effective, but may not imply approval, endorsement, or merit review.
• Guaranteeing against loss, promising a specific return, or sharing in a customer's losses to cushion a bad investment is prohibited, even without the word "guarantee." Describing an issuer feature ("this bond pays a 5% coupon") is fine; an agent guaranteeing an outcome is not.

Which Numbers Matter Most?

What Is the Memory Aid for Registration Versus Endorsement?

Registration does not equal Endorsement. Registration is a legal filing; endorsement is a quality judgment. The Administrator does one, never the other.

Which Gotchas Trip Students Up?

• ODD timing: at or before options-account approval, never afterward.
• Do not confuse principal approval (every account) with the customer signature (only margin and options).
• Reg T sets initial margin; FINRA sets maintenance margin.

One-Breath Recap

A principal approves every new account, but the customer signs nothing to open a cash account, while the firm still furnishes the account record within 30 days and every 36 months after. A margin account needs the margin agreement signed promptly after the first margin transaction, Reg T's 50% initial margin, FINRA's 25%/30% maintenance margin, and a $2,000 equity floor. An options account needs the Options Disclosure Document delivered at or before approval, an options-qualified principal to approve, and the signed agreement and verification both returned within 15 days. The firm makes a reasonable effort to name a trusted contact person aged 18 or older. Two lines never move: registration is effective, never approved, and no agent may guarantee against loss or cushion a customer's losses.

Need more than the recap? Read the full Customer Agreements unit.