FINRA Series 7Investment Information and Suitable RecommendationsMedium
A customer sells short 100 shares of XYZ stock at $40 per share in a margin account. Under Regulation T, what is the customer's initial margin deposit requirement?
- A$1,000
- B$4,000
- C$2,000
- D$3,000
Show answer & explanationAnswer & explanation
Correct answer: C. $2,000
Regulation T requires 50% initial margin on short sales. The short sale proceeds are 100 shares × $40 = $4,000, so the required margin deposit is 50% × $4,000 = $2,000.
Why the other options are wrong
- A. Incorrect — this is only 25% of the position value, below the Reg T requirement.
- B. Incorrect — this equals 100% of the position value, not the margin requirement.
- D. Incorrect — this is 75%, more than required.
Short Sale Margin (Reg T)
Regulation T requires an initial margin deposit of 50% of the short sale proceeds when a customer sells short in a margin account.
- Short sale proceeds = shares × short price
- Initial margin = 50% of proceeds under Reg T
- Maintenance margin on short positions is generally higher percentage-wise as the stock rises
Memory trick: Short sellers still owe half — Reg T's 50% rule applies both ways.