Question 64

Closed-end funds traded on an exchange are marginable.

Closed-end funds that are traded on an exchange can be purchased on margin, allowing investors to borrow funds to buy more shares than they could with cash alone. This leverage can enhance potential returns but also increases risk.

A) Nonmarketable securities

Nonmarketable securities are not marginable because they cannot be sold on an exchange and lack a readily available market price. As a result, brokers do not allow these types of securities to be used as collateral for margin accounts.

B) Securities in an UTMA account

Securities held in a Uniform Transfers to Minors Act (UTMA) account are generally not marginable. The restrictions on the transfer and control of these assets prevent them from being eligible for margin trading, as they are intended to benefit the minor and are subject to specific legal guidelines.

C) Closed-end funds traded on an exchange

Closed-end funds traded on an exchange are marginable because they have an established market and can be readily bought and sold. This feature allows investors to use them as collateral for margin loans, making them a viable option for margin trading.

D) New issues for the first 30 days after issue

New issues are not marginable for the first 30 days after their initial offering. This restriction is put in place to stabilize the market for new securities and prevent excessive speculation during their early trading period.

Conclusion

Closed-end funds traded on an exchange are the only option that qualifies as marginable due to their marketability and established trading framework. In contrast, all other options, including nonmarketable securities, UTMA account holdings, and new issues, are restricted from margin trading for various regulatory and market stability reasons. Thus, option C stands out clearly as the correct answer.