FINRA Series 7Processes and Confirms TransactionsMedium
A customer's long margin account has a market value of $15,000 and a debit balance of $7,000. Assuming a 50% Reg T initial margin requirement, how much cash, if any, may the customer withdraw from the account?
- A$1,000
- B$8,000
- C$500
- D$0
Show answer & explanationAnswer & explanation
Correct answer: C. $500
Equity = $15,000 market value − $7,000 debit = $8,000. Reg T requirement on current market value = 50% × $15,000 = $7,500. Excess equity (SMA) = $8,000 − $7,500 = $500, which is the maximum cash withdrawable.
Why the other options are wrong
- A. Overstates the excess equity; miscalculates the Reg T requirement.
- B. Confuses total equity with withdrawable excess; withdrawing the full equity would violate Reg T.
- D. Incorrect—there is excess equity available since equity exceeds the Reg T requirement.
Excess Equity / SMA Withdrawal
The amount by which account equity exceeds the Reg T requirement on current market value; this excess (SMA) may be withdrawn in cash or used for further purchases.
- Equity = market value − debit balance
- Reg T requirement = 50% × current market value
- Excess equity = equity − Reg T requirement = withdrawable SMA
Memory trick: Equity minus Reg T requirement equals the cash you can pocket.