An investor opening a new margin account executes an initial transaction selling short 100… — FINRA SIE (Securities Industry Essentials)

An investor opening a new margin account executes an initial transaction selling short $100$ shares of a marginable stock at $\$28$ per share. Under Federal Reserve Regulation T and FINRA rules, what is the minimum dollar amount of initial equity the investor must deposit?

Answer: 2000 USD

Answer

The minimum required initial equity deposit is $2,000.

To determine the required initial deposit for a short sale in a new margin account, both Regulation T and FINRA rules must be evaluated. Regulation T requires 50% of the market value (

100 \times \$28 = \$2,800 \times 50\% = \$1,400

). However, FINRA Rule 4210 sets a mandatory minimum initial equity requirement of

2,000 for establishing short positions. Because the investor must satisfy the stricter of the two rules, the required initial deposit is

2,000.

Step-by-Step Solution

Calculate total short sale proceed value

2,800 (100 shares ×

28 per share)

Initial margin calculations are based on total transaction proceeds.

Calculate Federal Reserve Regulation T initial margin requirement

1,400 (50% of

2,800)

Regulation T mandates a standard 50% initial margin deposit on equity short sales.

Apply FINRA Rule 4210 minimum initial equity rule for short sales

$2,000 minimum requirement

FINRA rules require a strict minimum initial equity deposit of

2,000 to open a short position in a margin account, overriding Regulation T when the 50% calculation is less than

2,000.

Key Concept

FINRA Initial Margin Minimum Equity Rule for Short Sales

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