Hello Missy,

I need a detailed description of the broker call rate also known as
broker loan rate.  Here's what I know.  It is posted daily in the Wall
Street Journal and well as data terminals such as Bloomberg.  What I
need is details as to how the broker call rate/broker loan rate is
determined and calcuated on a daily basis.  For example, is the rate
tied to the Fed Fund or Interbank markets?  Could you please also
include the source of the information?

The broker call rate is set by the Federal Reserve Board of Governers
as you can see from the below quotes:

"HOW ARE MARGIN INTEREST RATES DETERMINED?
 
Just like when you borrow funds from another lender, when you borrow
funds in your margin account by purchasing securities on margin or
withdrawing funds from the equity in your account, you will be charged
interest on the money you borrow. *** Your interest rates, known as
"Margin Rates" are calculated using a base rate, known as the "Broker
Call Rate" plus a spread which varies with the size of your
outstanding margin (or "debit" or "loan") balance. The higher the
outstanding balance, the lower the interest rate. The Broker Call Rate
is set by the Federal Reserve Board and can be found in The Wall
Street Journal."
http://www.mycititrade.com/strategies/educated/margin.html

"The Securities Exchange Act of 1934 granted the Federal Reserve Board
(FRB) the power to set initial, maintenance, and short sale margin
requirements on all securities."
http://stocks.miningco.com/library/weekly/aa980316.htm

"Q: If I choose to finance my stock optionthrough a margin account,
what inter-est rate will accompany my loan?

A: The rate charged is known as the margin interest rate. It varies
with the broker call rate, which represents the rate at which banks
will make loans to "pre-ferred customers" such as brokeragefirms.
Depending on the amount of yourloan, the margin interest rate is
between 1.125 and 3.125 percentage points higher than the broker call
rate. However, the margin rate is generally below the interest rate
charged to public con-sumers for most loans."
http://www.wachoviasec.com/pdfs/17744-Stock%20Options%20Bro.pdf

You may also want to look at the margin requirements section of the
Securities Exchange Act of 1934, though I honestly can't understand
what it's saying.
http://www.law.uc.edu/CCL/34Act/sec7.html

Here is the entire Regulation T section of the federal reserves's
regulations:
http://www.federalreserve.gov/regulations/title12/sec220/12cfr220_01.htm


Thanks for the question and if you require more information, don't 
hesitate to ask for clarification.  And if you find this answer 
satisfactory, please feel free to rate it. Thank you! 
  
xemion-ga

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Request for Answer Clarification by wai-ga on 04 Jun 2002 10:29 PDT

The broker loan rate determines the margin interest rate.  Broker loan
rate is a interest rate in which brokers borrow from banks to cover
securities positions for their clients.  I need to know how the Broker
loan rate is determined and calcuated on a daily basis.  

---

Clarification of Answer by xemion-ga on 04 Jun 2002 11:45 PDT

Ok, I will attempt to find that information for you and post another
answer.  Thanks for the clarification!  

---

Clarification of Answer by xemion-ga on 04 Jun 2002 13:01 PDT

I've done further research on your question including contacting a
broker.  From what I gathered by talking to the broker, the base rate
is set by the federal fund rate and federal discount rate and any
daily changes would be reflective of the marketplace, but I was unable
to find any more detailed information than that.  The Interbank market
definitly has effects on international broker call rates, but I found
no mention of it effecting the U.S. rate.
 
I've done lots of searching on the subject including Usenet message
boards and haven't been able to come up with anything else.  My
recommendation is to contact a broker directly and keep contacting
different brokers until you get the answer that meets your needs.
 
If my research has been unable to meet your demands, please feel free
to repost the question or get a refund at this page:
&lt;a href=&quot;<a href="https://answers.google.com/answers/main?cmd=refundrequest">https://answers.google.com/answers/main?cmd=refundrequest</a>&quot;&gt;<a href="https://answers.google.com/answers/main?cmd=refundrequest">https://answers.google.com/answers/main?cmd=refundrequest</a>&lt;/a&gt; 
 
xemion-ga  

The researcher couldn't answer the questions.

Unable to answer my questions properly

From

http://web.archive.org/web/20011020165948/http://www.ceoheadlines.com/glossary.html

(Note, the site no longer exists, used the Way Back machine to get it)

"Broker Loan Rate:
Interest rate at which brokers borrow from banks to cover the
securities positions of their clients. The broker loan rate usually
hovers a percentage point or so above such short-term interest rates
as the federal funds rate and the Treasury bill rate. Since brokers’
loans and their customers’ margin accounts are usually covered by the
same collateral, the term "rehypothecation" is used synonymously with
broker loan borrowing. Because broker loans are callable on 24-hour
notice, the term call loan rate is also used, particularly in money
rate tables published in newspapers."

The term "rehypothecation" is key here, stick it in Google and you'll
get plenty hits on how crazy people do crazy calculations. However,
from this definition and all the foreign references to the broker loan
rate, it's clear that it floats, i.e., is determined by the market.