A customer opens a new margin account and executes a first-time long purchase of 50 shares… — FINRA SIE (Securities Industry Essentials)

A customer opens a new margin account and executes a first-time long purchase of $50$ shares of a marginable stock at $\$25$ per share. Under Federal Reserve Regulation T and FINRA margin rules, what is the minimum required initial cash deposit for this transaction?

$1,250$ Answer
B
$625$
C
$2,000$
D
$2,500$

Answer

The minimum required initial cash deposit is

1,250

Under Federal Reserve Regulation T, the initial margin requirement is 50% of the purchase price, which would be

625. However, FINRA Rule 4210 establishes a minimum initial equity requirement of

2,000 for opening margin positions. For purchases under

2,000, the rule states that the customer must deposit 100% of the purchase price. Since the total purchase price is

1,250 (50 shares at

25), the customer must deposit

1,250 in cash.

Step-by-Step Solution

Calculate the total purchase value

50 shares \times

25 =

1,250

Determining the total transaction amount is necessary to evaluate Regulation T and FINRA initial equity requirements.

Evaluate Federal Reserve Regulation T requirement

50\% \times

1,250 =

625

Regulation T mandates an initial deposit of 50% of the total purchase amount.

Apply FINRA Rule 4210 minimum initial equity rule

Deposit required = $1,250 (100% of purchase value)

FINRA rules require a minimum equity of

2,000 for a new margin transaction. However, if the total purchase price is less than

2,000, the customer must deposit 100% of the purchase value.

Key Concept

FINRA Minimum Initial Equity Exception for Small Margin Purchases

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Step-by-Step Solution

Key Concept

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