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Difficulty: HardMargin Accounts and Borrowing Requirements

Match each regulatory margin rule or borrowing standard to its corresponding operational constraint under Federal Reserve and FINRA regulations.

  • FINRA Initial Equity Requirement for Long Stock Purchases Under $2,000Requires a customer deposit equal to 100% of the total purchase price.
  • FINRA Initial Equity Requirement for Short Stock Sales Under $2,500Requires a minimum initial deposit of $2,500 regardless of how low the total transaction value is.
  • Broker-Dealer Rehypothecation Limit under SEC / FINRA RulesCaps the pledge of customer securities to banks for loans at 140% of the debit balance.
  • Federal Reserve Board Marginability Restriction on New Issues (IPOs)Prohibits buying securities on margin for 30 days after the public offering effective date.

Answer

The correct matches pair FINRA long purchases under 2,000witha1002,000 with a 100% cash deposit, short sales under 2,500 with a minimum $2,500 deposit, rehypothecation limits with 140% of debit balance, and new issue restrictions with the 30-day margin prohibition.
Each regulation specifies a mandatory operational boundary: long purchases under 2,000requirefullcashpayment(1002,000 require full cash payment (100%), short sales under 2,500 require a minimum $2,500 deposit due to short risk, broker-dealer rehypothecation to banks is capped at 140% of the customer debit balance, and new issue securities are non-marginable for 30 days post-effective date.

Step-by-Step Solution

1
Analyze the FINRA initial equity rule for small long purchases.
Purchases under 2,000requirea1002,000 require a 100% deposit (e.g., a 1,500 purchase requires $1,500 cash).
FINRA minimum equity is $2,000 or 100% of purchase price, whichever is less.
2
Analyze the FINRA initial equity rule for small short sales.
Short sales require a minimum deposit of 2,500,evenifthesaleamountisunder2,500, even if the sale amount is under 2,500.
Short positions carry unlimited risk, so FINRA enforces a strict $2,500 equity floor.
3
Identify the legal rehypothecation boundary for broker-dealers borrowing from banks.
The maximum rehypothecation amount is 140% of the customer's debit balance.
SEC Rule 15c3-3 protects customer assets from over-collateralization.
4
Identify margin restrictions regarding newly issued public offerings.
New issues cannot be bought on margin for 30 calendar days after issuance.
Federal Reserve Board rules mandate a 30-day seasoning period for new issues before becoming marginable.

Key Concept

Margin Accounts and Borrowing Requirements
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Margin Accounts and Borrowing Requirements