Customer Agreements

Review account documents, approvals, margin and options deadlines, and 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 (except those limited to unrecommended mutual funds), 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.
• Natural-person account records: furnish within 30 days of opening, then every 36 months; exempt if no suitability determination was required in the prior 36 months. Investment-objective changes: updated copy within 30 days of notice.
• 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 Options Clearing Corporation (OCC), at or before options approval.
• For a natural person, due diligence seeks at least objectives, employment, income, net worth, liquid net worth, marital status, dependents, age, and experience.
• A branch office manager or an options-qualified principal approves in writing before trading. A non-qualified manager's decision needs confirmation by a Registered Options Principal (ROP) or Limited Principal-General Securities Sales Supervisor within 10 business days.
• The customer returns the signed options agreement within 15 days of approval. For a natural person, send verification information within that period unless included in the agreement; it is deemed verified absent corrections.
• A material financial change requires another verification mailing within 15 days after the firm learns of it.
• 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 without state endorsement. A truthful statement of effectiveness must not imply an Administrator recommendation or judgment on any person's, security's, or transaction's merits or qualifications.
• 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; cash accounts need no customer signature. Natural-person records are furnished within 30 days of opening and every 36 months, unless no suitability determination was required in the prior 36 months. Margin accounts need an agreement signed promptly after the first margin transaction, Reg T's 50% initial margin, FINRA's 25%/30% maintenance, and $2,000 equity. Options accounts need the Options Disclosure Document by approval, options-qualified principal approval, and the signed agreement returned within 15 days after approval. Firms make reasonable efforts to obtain a trusted contact aged 18 or older. Effective registration creates no state endorsement; agents cannot guarantee against loss or cushion losses.

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