An investor opening a new margin account executes a long purchase of 100 shares of stock a… — FINRA SIE (Securities Industry Essentials)

An investor opening a new margin account executes a long purchase of 100 shares of stock at $15 per share. Assuming there are no other cash or securities in the account, what is the minimum cash deposit required from the investor to satisfy Regulation T and FINRA margin requirements?

$1,500Answer
B
$750
C
$2,000
D
$3,000

Answer

The minimum cash deposit required is $1,500.

Under Regulation T, the initial margin deposit is 50% of the purchase price (

1,500 × 50% =

750). However, FINRA Rule 4210 mandates that a customer opening a new long margin position must deposit at least

2,000 or 100% of the purchase price, whichever is less. Since the purchase price of

1,500 is less than

2,000, 100% of the purchase price (

1,500) applies, making $1,500 the required cash deposit.

Step-by-Step Solution

Calculate the total purchase value of the stock.

100 shares ×

15 per share =

1,500 total purchase value.

Establishing the total position cost is the foundation for determining margin requirements.

Calculate the Regulation T initial requirement.

50% of

1,500 =

750.

Federal Reserve Regulation T specifies a 50% initial margin requirement on marginable stock transactions.

Apply the FINRA minimum initial equity rule.

FINRA Rule 4210 requires

2,000 or 100% of the purchase price, whichever is less. 100% of

1,500 is $1,500.

FINRA imposes an initial equity requirement to protect broker-dealers from credit risk on small accounts.

Determine the required deposit by comparing Reg T and FINRA rules.

The investor must deposit

1,500, which is the greater of the Reg T amount (

750) and the FINRA minimum ($1,500).

The customer must satisfy the stricter of Federal Reserve Reg T and SRO rules.

Key Concept

FINRA Minimum Initial Equity Requirement for Long Margin Transactions Under $2,000

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