FINRA Series 7Processes and Confirms TransactionsMedium
A customer buys 1,000 shares of ABC stock at $50 per share in a new margin account. Under Reg T, what is the minimum amount the customer must deposit?
- A$12,500
- B$50,000
- C$20,000
- D$25,000
Show answer & explanationAnswer & explanation
Correct answer: D. $25,000
Reg T initial margin requirement is 50% of the purchase price. Total purchase = 1,000 × $50 = $50,000. Required deposit = 50% × $50,000 = $25,000.
Why the other options are wrong
- A. This is only 25% of the purchase price, below Reg T requirement.
- B. This equals full payment, more than Reg T requires.
- C. This is 40%, insufficient under Reg T's 50% rule.
Reg T Initial Margin
Federal Reserve Board requirement mandating a minimum 50% deposit of the purchase price for margin stock purchases.
- Applies to initial purchase, not maintenance
- Currently set at 50% for equities
- FINRA maintenance requirement is generally 25% of market value thereafter
Memory trick: Half now, half on credit — that's Reg T.