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Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opens a new margin account with a FINRA member firm and places an initial order to purchase 5050 shares of a marginable stock at $30\$30 per share. Assuming no other cash or securities are present in the account, what is the minimum required initial margin deposit the customer must make under Federal Reserve Regulation T and FINRA rules?

  1. A
    $750
  2. $1,500Answer
  3. C
    $2,000
  4. D
    $3,000

Answer

The minimum required initial margin deposit is $1,500.
Under Federal Reserve Regulation T, the initial margin requirement is 50% of the trade value (750).However,SROrules(FINRARule4210)requireaminimuminitialequitydepositof750). However, SRO rules (FINRA Rule 4210) require a minimum initial equity deposit of 2,000 or 100% of the purchase price, whichever is less. Because the total purchase value is 1,500,1001,500, 100% of the purchase price ( 1,500) is less than 2,000,making2,000, making 1,500 the correct required deposit.

Step-by-Step Solution

1
Calculate the total purchase value of the transaction
Total purchase value = 50 shares×$30=$1,50050 \text{ shares} \times \$30 = \$1,500
Margin requirements are determined based on the total market value of the trade.
2
Calculate the Regulation T initial requirement (50%)
Regulation T requirement = 50%×$1,500=$75050\% \times \$1,500 = \$750
Federal Reserve Board Regulation T sets a baseline initial margin requirement of 50%.
3
Apply FINRA initial minimum equity requirement rules
Required deposit = min⁡($2,000,100% of purchase price)=min⁡($2,000,$1,500)=$1,500\min(\$2,000, 100\% \text{ of purchase price}) = \min(\$2,000, \$1,500) = \$1,500
FINRA rules mandate an initial minimum equity of $2,000 or 100% of the purchase price, whichever is less.

Key Concept

FINRA Initial Margin Minimum Deposit Exception for Small Purchases
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Topics

Margin Accounts and Borrowing Requirements