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Difficulty: MediumMargin Accounts and Borrowing Requirements

An investor opening a new margin account places an initial order to purchase 150150 shares of XYZ stock at $16\$16 per share. Under Federal Reserve Regulation T and FINRA rules, what is the minimum cash deposit required from the investor for this trade?

  1. A
    1,2001,200
  2. 2,0002,000Answer
  3. C
    2,4002,400
  4. D
    600600

Answer

2,0002,000
For an initial long transaction in a margin account with a total purchase value between 2,000and2,000 and 4,000, Regulation T requires 50% (1,200),butFINRARule4210mandatesaminimuminitialequityrequirementof1,200), but FINRA Rule 4210 mandates a minimum initial equity requirement of 2,000. The investor must deposit the greater of the two amounts, which is $2,000.

Step-by-Step Solution

1
Calculate the total purchase price
150×$16=$2,400150 \times \$16 = \$2,400
Determines the base transaction size for initial margin calculations.
2
Calculate Federal Reserve Regulation T requirement (50%)
50%×$2,400=$1,20050\% \times \$2,400 = \$1,200
Federal Reserve Reg T requires 50% initial equity for long margin transactions.
3
Apply FINRA minimum initial equity rule
Required cash deposit = \$2,000
FINRA rules require a minimum initial equity deposit of 2,000fornewmarginaccountswhenthetransactionvalueisbetween2,000 for new margin accounts when the transaction value is between 2,000 and 4,000.Theinvestormustmeetthestricterrequirementof4,000. The investor must meet the stricter requirement of 2,000.

Key Concept

FINRA Initial Minimum Equity vs. Regulation T Requirement
Estimated Time:1m 0s
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Topics

Margin Accounts and Borrowing Requirements