FINRA Series 7Processes and Confirms TransactionsHard
A customer sells short 100 shares of XYZ at $40 in a margin account, depositing the Reg T required 50% margin. The stock later rises to $50. FINRA's short sale maintenance requirement is 30% of current market value. How much additional margin must the customer deposit to meet the maintenance call?
- A$500
- B$1,000
- C$1,500
- D$0, the account meets minimum equity
Show answer & explanationAnswer & explanation
Correct answer: A. $500
Initial proceeds = 100 × $40 = $4,000; Reg T margin deposit = 50% × $4,000 = $2,000; total credit balance = $6,000. Current market value = 100 × $50 = $5,000. Equity = Credit balance − Market value = $6,000 − $5,000 = $1,000. Required maintenance = 30% × $5,000 = $1,500. Margin call = $1,500 − $1,000 = $500.
Why the other options are wrong
- B. This miscalculates equity by omitting the initial margin deposit.
- C. This equals the full maintenance requirement, not the shortfall.
- D. Equity has fallen below the 30% requirement, so a call is triggered.
Short Sale Maintenance Call
When a shorted stock rises in price, equity in the account shrinks; FINRA requires maintenance equity of 30% of current market value (minimum), triggering a call if equity falls short.
- Equity = Credit balance − Current market value
- Credit balance = Sale proceeds + initial margin deposit
- Maintenance requirement is 30% of market value for short positions
Memory trick: Stock climbs, shorts feel the squeeze — pay to keep your seat.