An investor opening a new margin account executes two transactions on the same day: a purc… — FINRA SIE (Securities Industry Essentials)

An investor opening a new margin account executes two transactions on the same day: a purchase of 100 shares of Stock X at $28 per share and a short sale of 100 shares of Stock Y at$ 16 per share. Assuming no prior balance or positions exist in the account, what is the total minimum cash deposit required from the investor to satisfy Federal Reserve Regulation T and FINRA initial equity rules?

$2,200Answer
B
$2,000
C
$3,000
D
$4,000

Answer

$2,200 cash deposit is required.

To determine the required initial margin deposit for a new margin account with multiple transactions, compute the Regulation T requirement (50%) for both trades:

1,400 for the long purchase (

2,800 × 50%) and

800 for the short sale (

1,600 × 50%), giving a combined Regulation T requirement of

2,200. FINRA Rule 4210 establishes a minimum initial equity requirement of

2,000 per account. Because the calculated Regulation T requirement of

2,200 is greater than the

2,000 FINRA minimum, the customer must deposit $2,200.

Step-by-Step Solution

Calculate the total market value of the transactions

Long Purchase: 100 shares ×

28 =

2,800. Short Sale: 100 shares ×

16 =

1,600. Total transaction value = $4,400.

Margin requirements are based on the aggregate purchase price and short proceeds.

Calculate the Regulation T requirement (50%) for each trade

Long Reg T: 50% of

2,800 =

1,400. Short Reg T: 50% of

1,600 =

800. Total Reg T requirement = $2,200.

Federal Reserve Board Regulation T requires a 50% initial deposit on marginable equity securities for both long purchases and short sales.

Compare total Regulation T requirement against FINRA minimum initial equity rule

Greater of

2,200 (Reg T requirement) vs.

2,000 (FINRA minimum account equity) = $2,200.

FINRA Rule 4210 mandates a minimum initial account equity of

2,000 (or 100% of purchase price if long trade is less than

2,000). Since total Reg T (

2,200) exceeds

2,000, the investor must deposit $2,200.

Key Concept

Initial Margin Requirements under Regulation T and FINRA Rule 4210

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Answer

Step-by-Step Solution

Key Concept

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