Securities Backed Lines of Credit Meaning & Definition

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Definition of Securities Backed Lines of Credit

Some broker dealers allow customers to have a line of credit attached to their account which allows the investor to borrow funds based on the value of the (fully paid for) assets in the account. This is not a margin loan used to purchase securities. In some ways it functions like a home equity line of credit that allows the investor to borrow from the broker dealer to meet their cash needs or to pay for a large purchase such as a home renovation

Applying "Securities Backed Lines of Credit" to Securities Exams:

Firms must have proper procedures in place to make sure the customers and the representatives understand the loan restrictions and features. Customers must understand how a fall in the market value of the securities in the account can impact their ability to borrow. Additionally, a significant fall in the value of the securities may require additional collateral or a portion of the loan to be repaid. Customers whose accounts fall significantly in value and who cannot repay the required portion of the loan will have their securities subject to liquidation.