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Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opens a new margin account and executes a short sale of 600600 shares of common stock at a price of $15\$15 per share. Assuming Federal Reserve Regulation T initial margin is set at 50%50\% and there are no prior cash or position balances in the account, what is the minimum dollar amount of cash equity the investor must deposit?

Answer: 4500 USD

Answer

The minimum cash deposit required is 45004500 USD.
The correct deposit amount is 45004500 USD. The total short transaction value is 600 shares×$15=$9000600 \text{ shares} \times \$15 = \$9{}000. Under Federal Reserve Regulation T, the initial margin requirement is 50%50\% of the transaction value (0.50×$9000=$45000.50 \times \$9{}000 = \$4{}500). Because $4500\$4{}500 is greater than FINRA's minimum initial account requirement of $2000\$2{}000, the investor must deposit the full $4500\$4{}500.

Step-by-Step Solution

1
Calculate Total Short Market Value
600×$15=$9000600 \times \$15 = \$9{}000
Determining the total transaction size establishes the baseline for regulatory margin calculations.
2
Apply Regulation T Initial Margin Requirement
0.50×$9000=$45000.50 \times \$9{}000 = \$4{}500
Federal Reserve Regulation T requires an initial equity deposit of at least 50%50\% of the transaction value.
3
Evaluate Against FINRA Minimum Initial Equity Threshold
max⁡($4500,$2000)=$4500\max(\$4{}500, \$2{}000) = \$4{}500
FINRA rules mandate a minimum initial account equity of $2000\$2{}000. The investor must satisfy the larger of the Regulation T requirement or FINRA's minimum requirement.

Key Concept

Regulation T initial margin and FINRA minimum initial equity requirements for short equity positions
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Topics

Margin Accounts and Borrowing Requirements