An investor opens a new margin account with a FINRA member broker-dealer and executes an i… — FINRA SIE (Securities Industry Essentials)

An investor opens a new margin account with a FINRA member broker-dealer and executes an initial transaction by selling short 100 shares of a marginable equity security at $18 per share. What is the required initial margin deposit for this transaction?

A
$900
B
$1,800
$2,000Answer
D
$2,700

Answer

The investor must deposit $2,000.

Under FINRA Rule 4210, the minimum initial equity requirement to open a short position in a margin account is

2,000. Although Federal Reserve Regulation T requires 50% of the market value (

900), FINRA rules require the investor to deposit the greater of Regulation T or $2,000 for short sales.

Step-by-Step Solution

Calculate the total short sale market value

1,800 (100 shares ×

18 per share)

Establishing total trade value is required to calculate margin requirements.

Calculate the Regulation T requirement

900 (

1,800 × 50%)

Federal Reserve Board Regulation T requires a 50% deposit of the total transaction value.

Apply FINRA minimum initial equity rule for short sales

$2,000 minimum deposit

FINRA rules mandate a minimum initial equity deposit of

2,000 for short positions. Unlike long margin purchases, short sales do not allow a deposit of less than

2,000 for small transactions.

Key Concept

FINRA Initial Margin Minimum Requirement for Short Sales

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Step-by-Step Solution

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