A customer opening a new margin account with no prior position or cash balance executes an… — FINRA SIE (Securities Industry Essentials)

A customer opening a new margin account with no prior position or cash balance executes an initial transaction purchasing $3,600 of a marginable equity security. Which of the following statements correctly identifies both the required initial equity deposit for this trade and the execution requirement for the Loan Consent Agreement?

The customer must deposit $2,000, and signing the Loan Consent Agreement is optional.Answer
B
The customer must deposit $1,800, and signing the Loan Consent Agreement is optional.
C
The customer must deposit $2,000, and signing the Loan Consent Agreement is mandatory.
D
The customer must deposit $1,800, and signing the Loan Consent Agreement is mandatory.

Answer

The customer must deposit $2,000 to satisfy the FINRA initial equity requirement, and signing the Loan Consent Agreement is optional for opening a margin account.

For an initial long transaction of

3,600 in a new margin account, Regulation T requires 50% (

1,800). However, FINRA rules mandate a minimum equity deposit of

2,000 for initial purchases between

2,000 and

4,000. Therefore, the greater amount of

2,000 must be deposited. Regarding account documentation, the Credit Agreement and Hypothecation Agreement must be signed to open the account, whereas the Loan Consent Agreement is strictly optional.

Step-by-Step Solution

Calculate the Federal Reserve Regulation T initial margin requirement.

Regulation T requires 50% of the

3,600 purchase price, which equals

1,800.

Federal Reserve Board Regulation T specifies a baseline 50% margin requirement on eligible equity purchases.

Apply the FINRA Rule 4210 initial minimum equity requirement.

FINRA requires a minimum initial equity deposit of

2,000 for accounts with transactions over

2,000.

Because the

2,000 FINRA minimum equity requirement exceeds the

1,800 Regulation T calculation, the customer must deposit $2,000.

Determine the legal execution status of the Loan Consent Agreement.

Signing the Loan Consent Agreement is optional.

Opening a margin account requires execution of the Credit Agreement (interest terms) and Hypothecation Agreement (pledging securities), but giving permission to lend securities via the Loan Consent Agreement remains optional.

Key Concept

FINRA $2,000 Initial Minimum Equity Rule and Margin Account Documentation Requirements

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Answer

Step-by-Step Solution

Key Concept

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