Examkin

Question

Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opens a new margin account with a broker-dealer and places an initial order to purchase 80 shares of a marginable equity security at $40 per share. Assuming Regulation T is 50%, what is the minimum initial cash deposit required from the investor?

  1. $2,000Answer
  2. B
    $1,600
  3. C
    $3,200
  4. D
    $800

Answer

The minimum initial cash deposit required is $2,000.
The total transaction value is 3,200(80shares×3,200 (80 shares × 40). Federal Reserve Regulation T requires a 50% deposit (1,600).However,FINRARule4210mandatesaminimuminitialequitydepositof1,600). However, FINRA Rule 4210 mandates a minimum initial equity deposit of 2,000 for any new margin account purchase valued between 2,000and2,000 and 4,000. Broker-dealers must enforce the stricter requirement, so the investor must deposit $2,000.

Step-by-Step Solution

1
Calculate total purchase value
80 shares x 40=40 = 3,200
Determines the total transaction size for the initial purchase.
2
Calculate Federal Reserve Regulation T requirement
50% of 3,200=3,200 = 1,600
Regulation T mandates a standard 50% initial margin requirement.
3
Apply FINRA minimum initial equity rule
FINRA Rule 4210 requires a minimum deposit of 2,000forlongpurchasesbetween2,000 for long purchases between 2,000 and $4,000.
FINRA requires a minimum initial account equity of 2,000unlessthetotaltradevalueislessthan2,000 unless the total trade value is less than 2,000 (which requires 100% payment).
4
Determine final required deposit
The investor must deposit 2,000,whichisthegreateroftheRegTamount(2,000, which is the greater of the Reg T amount ( 1,600) and the SRO minimum ($2,000).
The broker-dealer must enforce the stricter requirement.

Key Concept

FINRA Rule 4210 Initial Minimum Equity Requirement
Rate this question

Topics

Margin Accounts and Borrowing Requirements