Question 64

Closed-end funds traded on an exchange are marginable.

Closed-end funds that are traded on an exchange can be used as marginable securities. They meet the requirements set by regulatory authorities, allowing investors to borrow against them.

A) Nonmarketable securities

Nonmarketable securities are not marginable because they cannot be easily sold or traded in the market. Their illiquidity and lack of a reliable market price prevent them from being used as collateral for margin loans.

B) Securities in an UTMA account

Securities held in a Uniform Transfers to Minors Act (UTMA) account are generally not marginable. These accounts are designed to hold assets for minors until they reach adulthood, and the restrictions placed on such accounts limit their use as collateral.

C) Closed-end funds traded on an exchange

Closed-end funds traded on an exchange are marginable because they are publicly traded and have established market prices. These funds can be used as collateral for margin borrowing, making them an acceptable choice for investors looking to leverage their positions.

D) New issues for the first 30 days after issue

New issues are not marginable for the first 30 days after their release. This restriction is in place to ensure stability and prevent excessive speculation immediately after the securities are offered to the public.

Conclusion

Closed-end funds traded on an exchange are the only option among the choices that qualifies as marginable due to their marketability and established pricing. The other options, including nonmarketable securities, UTMA account holdings, and new issues within their initial trading period, do not meet the necessary criteria for margin eligibility. This distinction is crucial for understanding margin trading in securities.