Quick Answer
Customers may withdraw free credit balances at any time; security withdrawals require securities to be fully paid and unpledged, though a margin account can release some pledged securities if enough equity remains. For tender offers, only the customer decides whether to tender, and tendering capacity is the customer's net long position (long minus short) across all accounts.
Customers sometimes need to withdraw cash or securities from their accounts, or respond to tender offers. These actions have specific rules you should know for the exam.
What Can a Customer Withdraw, and When?
- Customers may request withdrawal of free credit balances (cash) at any time
- Security withdrawals require the securities to be:
- Fully paid (not purchased on margin with an outstanding debit balance)
- Not subject to lien or hypothecation (not pledged as collateral)
- Securities pledged as collateral in a margin account may be withdrawn only if the account remains compliant with Regulation T and, after the withdrawal, has equity of at least the greater of $2,000 or the applicable maintenance-margin requirement. A full payoff of the debit balance is not required, only enough remaining equity
- Firms must send customers a free credit balance notification at least quarterly, reminding them the cash is available for withdrawal or investment
Think of it this way: Hypothecation means pledging your securities as collateral for a margin loan. The firm has a lien on those shares, so a withdrawal cannot drop the account below its equity floor. Paying down the loan is one way to free up equity, but it is not the only way.
Exam Tip: Gotchas
- Free credit balances must be available on request. The firm cannot refuse or delay a cash withdrawal.
- A margin account does not need a zero debit balance to release pledged securities. The test is whether post-withdrawal equity still meets the greater of $2,000 or the maintenance-margin requirement. Treating "any debit balance" as an absolute block is the trap answer.
Who Decides Whether to Tender?
A tender offer is a public offer to purchase shares from existing shareholders, typically at a premium to the current market price.
- When a tender offer is made for securities held in customer accounts, the firm must promptly notify the customer
- The customer decides whether to tender. The firm may not tender customer securities without authorization
- Short tendering (tendering more shares than actually owned) is prohibited under SEC rules
- A customer's tendering capacity equals their net long position: long shares minus short shares in the same security, across all accounts
Example: A customer is long 700 shares in a margin account and short 300 shares in a separate short account. Net long = 700 minus 300 = 400 shares. Only 400 shares may be tendered.
Exam Tip: Gotchas
- The firm cannot make the tender decision for the customer. If a question describes a firm tendering shares "in the customer's best interest" without getting authorization, that is a violation regardless of how beneficial the tender might be.
- Net long = long minus short, across all accounts. A customer long 700 and short 300 in the same security at the same firm may tender only 400 shares. The gross long position of 700 is not the limit.
What Should You Check on Exam Day?
- Free credit balances: withdrawable anytime, on request, no firm delay
- Security withdrawals: fully paid, unpledged; margined securities may come out if the account stays Reg T compliant and post-withdrawal equity is at least the greater of $2,000 or the maintenance requirement
- Tender decisions belong to the customer, never the firm, regardless of how favorable the tender looks
- Tendering capacity = net long position (long minus short, across all accounts); short tendering is prohibited