Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
Which of the following is NOT a characteristic of a cash account?
- ASettlement for purchases typically occurs on T+2.
- BAll transactions must be paid in full.
- CClients can purchase securities on margin.
- DIt is the only type of account allowed for minors.
Show answer & explanationAnswer & explanation
Correct answer: C. Clients can purchase securities on margin.
A cash account requires all transactions to be paid in full by the settlement date (typically T+2 for most securities). Purchasing securities on margin (borrowing money from the broker-dealer) is a feature of a margin account, not a cash account.
Why the other options are wrong
- A. Settlement on T+2 (for stocks) applies to both cash and margin accounts for regular-way trades.
- B. This is a defining characteristic of a cash account.
- D. Minors (UGMA/UTMA accounts) can only operate cash accounts.
Cash Account
A brokerage account where all securities transactions must be paid in full by the settlement date, without the use of borrowed funds (margin). It is the standard account type and the only one permitted for certain types of investors, such as minors.
- No borrowing (margin) allowed.
- Payment in full by settlement date.
- Standard account type.
- Required for minors (UGMA/UTMA).
Memory trick: Account: Cash is simple, Margin is complex with borrowing.