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Difficulty: Very hardMargin Accounts and Borrowing Requirements

Match each margin account transaction or position scenario under Federal Reserve Regulation T and FINRA Rule 4210 to its correct governing initial or maintenance equity requirement.

  • First-time long stock purchase of $1,600 in a new margin account100% of the purchase price ($1,600)
  • Initial margin deposit required for a long purchase of $8,000 in marginable equity securities50% of the purchase price ($4,000)
  • FINRA minimum maintenance requirement for a short stock position selling at $12.00 per share30% of current market value or $5.00 per share, whichever is greater
  • FINRA minimum maintenance equity requirement for a short stock position trading at $2.00 per share$2.50 per share (or 100% of current market value, whichever is greater)

Answer

Each scenario correctly pairs with its governing requirement: long purchase under 2,000requires1002,000 requires 100% deposit ( 1,600); 8,000longpurchaserequires508,000 long purchase requires 50% Reg T deposit ( 4,000); short position at 12.00requiresthegreaterof3012.00 requires the greater of 30% market value or 5.00/share; short position under 2.50requires2.50 requires 2.50 per share.
Each scenario correctly matches its exact statutory requirement under Regulation T and FINRA Rule 4210. Long purchases under 2,000require1002,000 require 100% payment; standard long purchases over 4,000 require 50% Regulation T deposit; short positions trading at 5.00orhigherrequire305.00 or higher require 30% of market value or 5.00 per share minimum; short positions under 2.50require2.50 require 2.50 per share minimum.

Step-by-Step Solution

1
Evaluate the boundary condition for long purchases under $2,000.
For a long stock purchase of 1,600,FINRARule4210dictatesdepositing1001,600, FINRA Rule 4210 dictates depositing 100% of the transaction value ( 1,600) rather than the standard $2,000 minimum.
When total purchase cost is below $2,000, the requirement is 100% of the purchase value.
2
Calculate standard Regulation T initial requirement on larger long purchases.
For an 8,000stockpurchase,RegulationTspecifies508,000 stock purchase, Regulation T specifies 50% ( 4,000), which exceeds FINRA's $2,000 minimum threshold.
Regulation T requires 50% initial margin for equity purchases.
3
Determine FINRA short position maintenance rules for stock priced above $5.00.
For stock trading at 12.00,FINRArequires3012.00, FINRA requires 30% of current market value or 5.00 per share, whichever is greater.
Standard short equity maintenance is 30% of market value, with a minimum floor of 5.00pershareforstockspriced5.00 per share for stocks priced 5.00 and above.
4
Determine FINRA short position maintenance rules for low-priced stock under $2.50.
For stock trading at 2.00pershare,FINRArequires2.00 per share, FINRA requires 2.50 per share (or 100% of market value, whichever is greater).
Shorting low-priced stocks under 2.50persharecarriesheightenedrisk,triggeringthestatutoryminimummaintenancerequirementof2.50 per share carries heightened risk, triggering the statutory minimum maintenance requirement of 2.50 per share.

Key Concept

Margin Account Initial and Maintenance Requirements
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Topics

Margin Accounts and Borrowing Requirements