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Difficulty: EasyMargin Accounts and Borrowing Requirements

Under Federal Reserve Regulation T, what is the standard initial margin deposit requirement for a customer purchasing marginable equity securities in a margin account?

  1. 50% of the purchase priceAnswer
  2. B
    25% of the purchase price
  3. C
    30% of the purchase price
  4. D
    100% of the purchase price

Answer

50% of the purchase price
Under Federal Reserve Regulation T, the standard initial margin requirement for purchasing marginable equity securities is 50% of the total purchase amount. The customer pays half the purchase price and borrows the remaining half from the broker-dealer.

Step-by-Step Solution

1
Identify the governing regulatory rule for initial margin purchases of equity securities.
Federal Reserve Board Regulation T establishes the initial margin requirement.
Reg T sets the standard initial credit percentage that broker-dealers may extend to customers.
2
Recall the standard Regulation T percentage requirement.
The initial requirement is 50% of the trade value.
The customer must deposit 50% of the transaction's value in equity/cash, while borrowing the remaining 50% from the broker-dealer.

Key Concept

Regulation T Initial Margin Requirement
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Topics

Margin Accounts and Borrowing Requirements