An investor opens a new margin account with a broker-dealer and executes an initial transa… — FINRA SIE (Securities Industry Essentials)

An investor opens a new margin account with a broker-dealer and executes an initial transaction to purchase $150$ shares of common stock at $\$20$ per share. Under Regulation T and FINRA rules, what is the minimum cash deposit in dollars required from the investor for this purchase?

Answer: 2000 $

Answer

The minimum cash deposit required is $2,000.

To determine the required initial deposit, first find the total transaction value: 150 shares ×

20 =

3,000. Under Federal Reserve Regulation T, the initial margin requirement is 50% of the purchase price (

3,000 × 0.50 =

1,500). However, FINRA Rule 4210 dictates that the minimum initial equity required to open a margin account is

2,000 (or 100% of the purchase value if the total cost is less than

2,000). Because

2,000 is higher than the

1,500 Regulation T requirement, the investor must deposit $2,000.

Step-by-Step Solution

Calculate total purchase market value

150 shares *

20 =

3,000

Determining the total transaction amount is necessary to evaluate Regulation T and FINRA margin thresholds.

Calculate the Regulation T percentage requirement

50% of

3,000 =

1,500

Federal Reserve Board Regulation T requires an initial deposit of 50% of the total purchase price.

Apply the FINRA Rule 4210 minimum initial equity rule

Required cash deposit = $2,000

FINRA Rule 4210 establishes a minimum initial equity requirement of

2,000 for opening a margin account (or 100% of the purchase price if the total cost is under

2,000). Since

2,000 is greater than the

1,500 Regulation T calculation, the customer must deposit $2,000.

Key Concept

FINRA Minimum Initial Equity Requirement ($2,000 Rule)

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