An investor opening a new margin account executes a purchase of 70 shares of a marginable … — FINRA SIE (Securities Industry Essentials)

An investor opening a new margin account executes a purchase of $70$ shares of a marginable stock at a market price of $35$ per share. Assuming no prior transactions or position balances exist in the account, what is the minimum cash deposit required from the customer to satisfy Federal Reserve Regulation T and FINRA initial margin requirements?

A
$1,225
$2,000Answer
C
$2,450
D
$1,000

Answer

$2,000

The total trade value is

2,450 (

70 shares x

35/share). Under Federal Reserve Regulation T, the initial margin requirement is 50%, which equals

1,225. However, FINRA Rule 4210 establishes a minimum initial equity requirement of

2,000 for opening long margin accounts (or 100% of the purchase value if the total purchase is under

2,000). Because

2,000 is greater than

1,225, the investor is required to deposit $2,000.

Step-by-Step Solution

Calculate total purchase value

70 \times 35 =

2,450$

Determines total market value of securities purchased in the margin transaction.

Calculate Federal Reserve Regulation T requirement

2,450 \times 0.50 =

1,225$

Regulation T mandates a standard 50% initial margin requirement.

Apply FINRA minimum initial equity rule

$2,000 minimum deposit required

FINRA rules state that for a new long margin account, the customer must deposit at least

2,000 or 100% of the purchase amount, whichever is less. Because

2,450 exceeds

2,000, the

2,000 minimum rule applies.

Compare Regulation T and FINRA minimum requirements

Deposit required is

\max(

1,225,

2,000) =

2,000$

The customer must satisfy the greater of the Regulation T percentage requirement or the FINRA dollar minimum.

Key Concept

FINRA Initial Margin Minimum Equity Rule vs. Regulation T Requirement

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