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Difficulty: EasyMargin Accounts and Borrowing Requirements

Match each margin account regulatory rule or disclosure document on the left with its correct function or requirement on the right.

  • Regulation TMandates a minimum initial deposit of 50% of the purchase price for marginable equity securities.
  • FINRA Minimum Maintenance (Long Account)Requires account equity to remain at or above 25% of the total current market value of securities.
  • FINRA Initial Minimum Equity RuleRequires an initial equity deposit of at least $2,000 (or 100% of the purchase price if less) when opening a margin account.
  • Margin Risk Disclosure StatementInforms customers of specific risks, such as firm-initiated liquidations, before or at the time of opening a margin account.

Answer

Regulation T pairs with requiring a 50% initial deposit; FINRA Minimum Maintenance (Long Account) pairs with maintaining at least 25% equity; FINRA Initial Minimum Equity Rule pairs with requiring a $2,000 initial equity deposit; and Margin Risk Disclosure Statement pairs with informing customers of margin trading risks prior to opening an account.
Each item accurately reflects the regulatory framework: Regulation T mandates the 50% initial margin requirement set by the FRB; FINRA Minimum Maintenance ensures equity stays above 25% for long accounts; the FINRA Initial Minimum Equity Rule sets a $2,000 deposit floor for margin accounts; and the Margin Risk Disclosure Statement informs investors of account risks prior to trading.

Step-by-Step Solution

1
Identify the governing body and rule for initial credit requirements.
Regulation T (FRB) sets the standard initial deposit requirement at 50%.
Federal Reserve Board regulations dictate initial extension of credit on securities.
2
Identify the SRO ongoing equity maintenance requirement for long positions.
FINRA mandates a ongoing minimum maintenance requirement of 25% for long positions.
SRO rules ensure accounts maintain adequate collateral against market drops.
3
Identify the absolute dollar equity threshold for starting margin transactions.
FINRA requires 2,000minimumequity(or1002,000 minimum equity (or 100% of purchase value if under 2,000).
Protects broker-dealers from credit risk on small initial margin purchases.
4
Identify the required disclosure explaining margin trading risks.
The Margin Risk Disclosure Statement must be provided before or at account opening.
Ensures investor protection by highlighting forced liquidation and interest terms.

Key Concept

Margin Account Regulatory and Operational Framework
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Topics

Margin Accounts and Borrowing Requirements