A customer opening a new margin account executes a first-time transaction by purchasing 80… — FINRA SIE (Securities Industry Essentials)

A customer opening a new margin account executes a first-time transaction by purchasing $80$ shares of a marginable stock at $\$40$ per share. Assuming there are no existing cash or security balances in the account, what is the minimum initial cash deposit required from the customer to satisfy Federal Reserve Regulation T and FINRA margin rules?

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

Answer

The minimum initial cash deposit required is $2,000.

The total trade value is

3,200 (80 shares ×

40). Regulation T requires 50% of the trade value (

1,600), but FINRA rules specify that a customer opening a margin account must deposit a minimum of

2,000 in equity (or 100% of the purchase price if the purchase is less than

2,000). Because

1,600 is below the

2,000 FINRA minimum threshold, the customer is required to deposit

2,000.

Step-by-Step Solution

Calculate the total purchase value of the stock transaction.

Total purchase value = 80 shares ×

40 =

3,200.

Margin requirements are determined based on the total market value of the trade.

Calculate the Regulation T initial requirement.

Regulation T requirement (50%) = 50% ×

3,200 =

1,600.

Federal Reserve Board Regulation T dictates a standard 50% initial margin for equity purchases.

Compare Regulation T requirement against FINRA minimum initial equity rules.

FINRA requires a minimum initial equity of

2,000 (or 100% of purchase price if less than

2,000). Since

1,600 is less than

2,000, the customer must deposit $2,000.

Broker-dealers must enforce whichever requirement is stricter between Reg T and FINRA minimum initial equity.

Key Concept

Initial Margin and FINRA Minimum Equity Rule

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