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Question

Difficulty: MediumMargin Accounts and Borrowing Requirements

Match each margin account regulatory term or restriction on the left with its corresponding operational description or rule requirement on the right.

  • Regulation T CallDemand for the 50% initial equity deposit mandated by the Federal Reserve Board for new margin purchases.
  • Maintenance CallDemand for additional equity when account equity falls below SRO minimum thresholds (e.g., 25% for long positions).
  • Pattern Day Trader RequirementMandatory $25,000 minimum equity required for customer accounts executing four or more day trades within five business days.
  • Freeriding ProhibitionProhibition against selling a newly purchased security to pay for its initial purchase prior to full settlement.

Answer

Regulation T Call matches the demand for 50% initial equity deposit mandated by the Federal Reserve Board; Maintenance Call matches the demand for additional equity when account equity falls below SRO minimum thresholds; Pattern Day Trader Requirement matches the mandatory $25,000 minimum equity required for customers executing four or more day trades within five business days; Freeriding Prohibition matches the prohibition against selling a newly purchased security to pay for its initial purchase prior to full settlement.
Each regulatory concept directly maps to its established rule: Regulation T calls cover the Federal Reserve 50% initial deposit requirement; Maintenance calls enforce FINRA ongoing equity thresholds; Pattern Day Trader rules mandate a $25,000 minimum equity level; and Freeriding rules ban selling securities to fund their initial purchase prior to full payment.

Step-by-Step Solution

1
Identify the initial trade margin deposit rule enforced by the Federal Reserve Board.
Regulation T Call corresponds to the 50% initial deposit required upon purchasing marginable securities.
Federal Reserve Board Regulation T dictates initial margin requirements.
2
Identify the self-regulatory organization (SRO) rule governing ongoing minimum account equity.
Maintenance Call corresponds to the demand triggered when account equity drops below FINRA threshold requirements.
FINRA Rule 4210 establishes minimum maintenance margin requirements (25% long / 30% short).
3
Identify the specialized equity threshold applicable to high-frequency intraday traders.
Pattern Day Trader Requirement matches the mandatory $25,000 minimum equity balance.
FINRA defines a pattern day trader as someone executing four or more day trades within five business days and mandates a $25,000 minimum equity requirement.
4
Identify the account violation stemming from uncollected settlement funds.
Freeriding Prohibition matches the restriction against selling securities before paying for their purchase.
Regulation T requires full payment for securities before allowing profits/proceeds to be used to cover the buying price.

Key Concept

Margin Call Types, Day Trading Rules, and Payment Violation Rules
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Topics

Margin Accounts and Borrowing Requirements