An active box is a location in a brokerage where securities which are owned by the brokerage or held on behalf of customers are kept. The active box is used as collateral for loans extended by the broker for the purpose of buying securities. The active box may also be known as an open box. The value of the securities stores in the active box can be significant, and it is usually highly secured as a result, to prevent tampering or theft.
When people buy securities through a broker, they typically do so using a margin account. With a margin account, people put up part of the cost of securities in the form of cash or securities held in the active box, and the broker extends a loan to cover the rest. Using a margin account allows people to trade on a higher volume than they would be able to do otherwise, but it also exposes a broker to risk, which is why brokers issue a “margin call” when someone's margin account dips below an acceptable level.
If a margin call is issued, the customer is asked to put up more cash to bring the margin back up, or the broker can start selling off securities in the active box to cover the customer's shortfall. Margins often fall dangerously low when the market is volatile, which means that a customer could stand to lose money if the broker resorted to selling his or her securities. For this reason, customers usually have an incentive to muster the funds to make up the balance rather than allowing the broker to sell off securities.
Customers of brokerages sign a great deal of paperwork when they join to indicate that they understand the terms of their accounts and the expectations that the broker has of them. Different brokers have different standards in place for their margin accounts, and these standards can vary depending on a customer's history, the volume of trading being done on behalf of the customer, and a variety of other factors. In all cases, the securities kept in the active box are a form of security for the broker so that the broker will not be left on the hook for the value of a customer's loan.
Brokers keep careful records of the securities they keep in storage in the active box. Brokeragers handle a wide variety of customer accounts and they must be able to account for the securities they hold on behalf of others in addition to the securities owned by the brokerage itself.
