An investor opens a new margin account with a FINRA member broker-dealer and places an ini… — FINRA SIE (Securities Industry Essentials)

An investor opens a new margin account with a FINRA member broker-dealer and places an initial transaction to purchase $70$ shares of a marginable stock at $\$45$ per share. What is the minimum required cash deposit the investor must make to satisfy Federal Reserve Regulation T and FINRA initial margin requirements?

$2,000$ Answer
B
$1,575$
C
$3,150$
D
$1,150$

Answer

The minimum cash deposit required is $2,000.

The total purchase value is 70 shares multiplied by

45, which equals

3,150. While Regulation T requires a 50% deposit (

1,575), FINRA Rule 4210 enforces an initial minimum equity requirement of

2,000 for accounts with trades valued between

2,000 and

4,000. Because the broker-dealer must enforce the stricter requirement, the customer must deposit $2,000 in cash.

Step-by-Step Solution

Calculate the total market value of the purchase.

70 \text{ shares} \times \$45 = \$3,150

Determining total transaction value is necessary to apply Regulation T and FINRA minimum equity rules.

Calculate the Regulation T initial requirement.

50\% \times \$3,150 = \$1,575

Federal Reserve Board Regulation T requires a standard 50% initial margin on equity purchases.

Compare against the FINRA minimum initial equity rule.

\text{FINRA minimum equity requirement} = \$2,000

FINRA Rule 4210 requires an initial minimum equity deposit of

2,000 (or 100% of the purchase value if total trade value is under

2,000). Since

3,150 is between

2,000 and

4,000, the

2,000 rule applies.

Determine the required deposit.

\max(\$1,575, \$2,000) = \$2,000

The customer must deposit the greater of the Regulation T requirement (

1,575) or the FINRA minimum equity requirement (

2,000).

Key Concept

Regulation T Initial Margin & FINRA Minimum Equity Requirement

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