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Difficulty: EasyMargin Accounts and Borrowing Requirements

An investor opens a new margin account and places an order to purchase 100 shares of XYZ common stock at $30 per share. What is the minimum dollar amount the investor must deposit to satisfy the initial margin requirement under Federal Reserve Regulation T and FINRA rules?

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

Answer

The minimum initial margin deposit required is $2,000.
For a long stock purchase in a margin account, Federal Reserve Regulation T mandates an initial deposit of 50% of the trade value (1,500).However,FINRArulesstipulatethatacustomermustdepositatleast1,500). However, FINRA rules stipulate that a customer must deposit at least 2,000 of equity to open a margin position (or 100% of the purchase price if the trade is less than 2,000).Because2,000). Because 2,000 is greater than 1,500,theinvestormustdeposit1,500, the investor must deposit 2,000.

Step-by-Step Solution

1
Calculate the total market value of the purchase
100 shares × 30pershare=30 per share = 3,000 total trade value.
Initial margin rules apply to the total dollar value of the trade.
2
Calculate the Federal Reserve Regulation T requirement
50% of 3,000=3,000 = 1,500.
Regulation T requires an initial deposit equal to at least 50% of the trade value.
3
Compare against the FINRA minimum initial equity rule
FINRA mandates a minimum initial equity deposit of 2,000foraccountsopeningpositionvaluesbetween2,000 for accounts opening position values between 2,000 and $4,000.
The FINRA 2,000ruleoverridesRegulationTwhen502,000 rule overrides Regulation T when 50% of the trade is less than 2,000.

Key Concept

FINRA $2,000 Minimum Initial Equity Requirement vs. Regulation T 50% Margin
Estimated Time:45s
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Topics

Margin Accounts and Borrowing Requirements