FINRA Series 7Processes and Confirms TransactionsMedium
A customer's long margin account shows a market value of $8,000 and a debit balance of $6,500. FINRA maintenance margin requires 25% of market value. What action, if any, must the broker-dealer take?
- AIssue a maintenance call for $1,500
- BIssue a Reg T call for $1,000
- CIssue a maintenance call for $500
- DNo action; the account meets maintenance requirements
Show answer & explanationAnswer & explanation
Correct answer: C. Issue a maintenance call for $500
Equity = Market Value − Debit = $8,000 − $6,500 = $1,500. Required maintenance equity = 25% × $8,000 = $2,000. The shortfall (maintenance call) = $2,000 − $1,500 = $500.
Why the other options are wrong
- A. This miscalculates the required equity by omitting existing equity.
- B. Reg T applies to new purchases, not maintenance of existing positions.
- D. Equity is below the required 25% threshold, so a call is needed.
Maintenance Margin Call
A demand for additional funds when equity in a margin account falls below FINRA's minimum maintenance requirement (25% of market value for long positions).
- Equity = Market Value − Debit Balance
- Minimum long maintenance requirement = 25% of market value
- Call amount = Required equity − actual equity
Memory trick: Equity dips below a quarter, pay up to restore order.