Series 28: Special Margin Credit

Special Margin Credit

Omnibus accounts are maintained by a clearing firm for other broker-dealers that have consolidated the accounts of their customers. Regulation T permits a broker-dealer to conduct and finance transactions for a broker-dealer if the broker-dealer gives the creditor written notice that:

• • All securities in the omnibus account will be for the account of the broker-dealer’s customers
• • Any short sales will be made on behalf of the broker-dealer’s customers other than its own partners

The written notice must conform to any SEC rules on the rehypothecation by broker-dealers of customers’ securities, namely Rules 15c2-1 and 15c3-3.

Rehypothecation. A customer who buys securities on margin borrows money from a broker-dealer to enable the purchase and pledges those securities as collateral for the loan. The customer is said to hypothecate the securities. Recall that the hypothecation agreement allows the broker-dealer, in turn, to use the collateralized securities in the margin account as col