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Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opens a new margin account and executes an initial transaction by purchasing 100100 shares of stock at $15\$15 per share. Under Federal Reserve Regulation T and FINRA rules, what is the minimum required initial margin deposit for this transaction?

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

Answer

$1,500 (100% of the purchase price)
Under Regulation T, the standard initial margin requirement is 50% of the purchase value (which equals 750).However,FINRARule4210requiresaminimuminitialdepositof750). However, FINRA Rule 4210 requires a minimum initial deposit of 2,000 for new margin accounts. An important exception applies to long equity purchases: if the total purchase price is less than 2,000,theinvestormustdeposit1002,000, the investor must deposit 100% of the purchase price (i.e., 1,500).

Step-by-Step Solution

1
Calculate total purchase value of the transaction
100 shares × 15=15 = 1,500
The total market value determines the base calculation for margin requirements.
2
Determine the Regulation T initial requirement (50%)
50% of 1,500=1,500 = 750
Federal Reserve Board Regulation T sets the baseline margin requirement at 50% of the purchase price.
3
Apply FINRA initial minimum equity rules
100% of purchase price = $1,500
FINRA rules mandate a minimum initial equity deposit of $2,000 or 100% of the purchase price, whichever is less, for long equity transactions.

Key Concept

Initial Margin Requirements for Small Long Purchases under FINRA and Regulation T Rules
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Topics

Margin Accounts and Borrowing Requirements