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Difficulty: HardMargin Accounts and Borrowing Requirements

An investor opening a new margin account executes a first-time transaction purchasing 60 shares of stock at $25 per share. Under Federal Reserve Regulation T and FINRA rules, what is the required initial margin deposit for this transaction?

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

Answer

$1,500 (100% of the total purchase price)
For long purchases in a new margin account, Regulation T requires a 50% deposit, but FINRA Rule 4210 establishes a minimum initial equity rule. When a long purchase total is under 2,000,theinvestormustdeposit1002,000, the investor must deposit 100% of the purchase price. Since 60 shares at 25 per share equals 1,500,theinvestormustdepositthefull1,500, the investor must deposit the full 1,500.

Step-by-Step Solution

1
Calculate total transaction value
60 shares × 25/share=25/share = 1,500
Determining total trade value is necessary to establish initial margin requirements.
2
Determine Federal Reserve Regulation T requirement
50% of 1,500=1,500 = 750
Regulation T mandates a standard 50% initial margin deposit for equity securities.
3
Apply FINRA minimum initial equity rule for long transactions
Required deposit is $1,500 (100% of purchase price)
FINRA Rule 4210 dictates that for long margin purchases under 2,000,theinvestormustdeposit1002,000, the investor must deposit 100% of the purchase price rather than 2,000 or the 50% Reg T amount.

Key Concept

FINRA Minimum Initial Equity Requirement for Long Margin Transactions
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Topics

Margin Accounts and Borrowing Requirements