FINRA Series 7Processes and Confirms TransactionsHard
A customer sells short 1,000 shares of a stock at $3 per share in a margin account, creating a current market value of $3,000. Under FINRA maintenance margin rules, what is the minimum maintenance margin requirement for this short position?
- A$3,000 (100% of market value)
- B$2,500 (the greater of $2.50 per share or 100% of market value)
- C$5,000 (the greater of $5 per share or 100% of market value)
- D$900 (30% of market value)
Show answer & explanationAnswer & explanation
Correct answer: C. $5,000 (the greater of $5 per share or 100% of market value)
For short positions in stocks trading under $5 per share, FINRA's maintenance margin requirement is the greater of $5 per share or 100% of the market value. Here, $5 × 1,000 shares = $5,000, which is greater than 100% of the $3,000 market value, so the requirement is $5,000.
Why the other options are wrong
- A. 100% of market value ($3,000) is less than the $5/share alternative, so it is not the controlling figure.
- B. $2.50 per share is not the correct threshold used in this maintenance margin rule.
- D. 30% of market value applies to stocks priced at $5 or above, not below.
Short Sale Maintenance Margin — Low-Priced Stocks
For short positions in securities trading under $5 per share, FINRA maintenance margin is the greater of $5 per share or 100% of the current market value.
- Applies specifically to stocks under $5/share
- For stocks $5 and above, requirement is 30% of market value
- Always use the greater of the two calculated figures
Memory trick: Under $5? Take the bigger of $5/share or 100% — protect against penny stock spikes.