Certified Regulatory Compliance Manager (CRCM) — Question 114

Which of the following credit arrangements would most likely be considered a purpose credit because it is indirectly secured by margin stock?

Answer options

• A. A loan made to purchase margin stock secured by nonmargin stock
• B. A loan made to a company for various corporate purposes, including the purchase of margin stock, secured by the corporate assets, which from time to time include margin stock; on the date of the consummation of the transaction approximately 10 percent of the assets of the company are margin stock
• C. A loan made to purchase margin stock, guaranteed by an individual who has pledged margin stock as security for the guarantee
• D. Bank is the trustee for a qualified pension plan from which the participants may borrow and use their interest in the plan as security; a participant borrows money for the purpose of purchasing margin stock

Correct answer: C

Explanation

The correct answer, C, is considered purpose credit because it directly involves the purchase of margin stock, with the guarantee being secured by margin stock itself. Options A and B do not directly tie the loan to the purchase of margin stock in a way that qualifies them as purpose credit. Option D pertains to a pension plan context, which does not categorize it as purpose credit for margin stock purchases.