FINRA Series 7Processes and Confirms TransactionsMedium
A customer sells short 200 shares of XYZ stock at $30 per share in a margin account. Under Reg T, how much must the customer deposit as initial margin?
- A$6,000
- B$9,000
- C$1,500
- D$3,000
Show answer & explanationAnswer & explanation
Correct answer: D. $3,000
Reg T requires 50% initial margin on short sales, based on the proceeds. Proceeds = 200 × $30 = $6,000. Required margin deposit = 50% × $6,000 = $3,000 (bringing total credit to 150% of the short sale proceeds).
Why the other options are wrong
- A. This equals the full proceeds, not the required margin deposit.
- B. This equals 150% of proceeds, which is the total required credit balance, not the deposit itself.
- C. This is only 25% of proceeds, below the Reg T requirement.
Short Sale Initial Margin
Reg T requires a customer to deposit 50% of the short sale proceeds as initial margin, resulting in a total credit balance of 150% of proceeds.
- Short sale proceeds are held by the broker as collateral
- Reg T deposit = 50% of proceeds
- Total credit balance = proceeds + margin deposit = 150% of proceeds
Memory trick: Short sellers post half again — 150% total credit.