An investor opens a new margin account and executes an initial purchase of 100 shares of X… — FINRA SIE (Securities Industry Essentials)

An investor opens a new margin account and executes an initial purchase of 100 shares of XYZ stock at $30 per share. Under Federal Reserve Regulation T and FINRA minimum initial equity rules, what is the minimum required margin deposit for this transaction?

A
$1,500
$2,000Answer
C
$3,000
D
$750

Answer

$2,000

Under Federal Reserve Regulation T, the initial margin requirement for equity purchases is 50%, which equals

1,500 for a

3,000 trade. However, FINRA Rule 4210 mandates that an investor must deposit a minimum of

2,000 in equity to open a margin transaction (or the full purchase amount if the total value is under

2,000). Since

2,000 exceeds the

1,500 Reg T requirement, the investor must deposit $2,000.

Step-by-Step Solution

Calculate the total purchase value of the transaction.

100 shares ×

30/share =

3,000 total purchase value.

Establishing the total position size is necessary to determine initial margin requirements.

Calculate the Federal Reserve Regulation T requirement.

50% of

3,000 =

1,500.

Regulation T mandates a 50% deposit on margin purchases of eligible equity securities.

Apply the FINRA minimum initial equity rule.

FINRA requires a minimum deposit of $2,000 for opening a margin transaction.

Because the FINRA minimum requirement of

2,000 is greater than the Regulation T requirement of

1,500, the investor must deposit the higher amount of $2,000.

Key Concept

FINRA Initial Minimum Equity Rule vs. Regulation T Requirement

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