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Difficulty: EasyMargin Accounts and Borrowing Requirements

An investor opens a new margin account and executes a first-time purchase of 200200 shares of a marginable stock at $30\$30 per share. Under Federal Reserve Regulation T, what is the minimum initial margin deposit required from the investor for this transaction?

  1. $3,000\$3,000Answer
  2. B
    $2,000\$2,000
  3. C
    $6,000\$6,000
  4. D
    $1,500\$1,500

Answer

The minimum initial margin deposit required is $3,000\$3,000.
For a long purchase of marginable stock, Regulation T requires a deposit of 50%50\% of the total purchase price. Purchasing 200200 shares at $30\$30 per share results in a total purchase value of $6,000\$6,000. Fifty percent of $6,000\$6,000 is $3,000\$3,000. Because $3,000\$3,000 is greater than the FINRA minimum account equity requirement of $2,000\$2,000, the investor must deposit $3,000\$3,000.

Step-by-Step Solution

1
Calculate the total purchase value of the stock trade.
Total Value=200 shares×$30=$6,000\text{Total Value} = 200 \text{ shares} \times \$30 = \$6,000.
Initial margin calculations are based on the aggregate market value of the purchase.
2
Apply the Federal Reserve Regulation T initial margin percentage requirement.
Reg T Deposit=50%×$6,000=$3,000\text{Reg T Deposit} = 50\% \times \$6,000 = \$3,000.
Regulation T mandates that investors deposit at least 50%50\% of the purchase price for margin transactions.
3
Compare the calculated Regulation T deposit against FINRA's minimum initial equity requirement.
$3,000>$2,000\$3,000 > \$2,000, so the required deposit remains $3,000\$3,000.
FINRA rules require a absolute minimum of $2,000\$2,000 equity (or 100%100\% of purchase price if less than $2,000\$2,000). Since the 50%50\% Reg T requirement ($3,000\$3,000) is higher than $2,000\$2,000, the investor must deposit $3,000\$3,000.

Key Concept

Regulation T Initial Margin Requirement
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Topics

Margin Accounts and Borrowing Requirements