Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A client has a margin account with a market value of $40,000 and a debit balance of $15,000. If the Regulation T initial margin requirement is 50%, what is the client's current excess equity?
- A$15,000
- B$10,000
- C$20,000
- D$5,000
Show answer & explanationAnswer & explanation
Correct answer: D. $5,000
To calculate excess equity, first determine the Regulation T requirement (50% of $40,000 = $20,000). Then, calculate the actual equity ($40,000 market value - $15,000 debit balance = $25,000). Excess equity is the actual equity minus the Regulation T requirement ($25,000 - $20,000 = $5,000).
Why the other options are wrong
- A. This is the debit balance, not the excess equity.
- B. This represents the full Regulation T requirement for the market value, not the excess equity.
- C. This is the market value, not the excess equity.
Excess Equity (Margin Account)
The amount of equity in a margin account that exceeds the Regulation T margin requirement.
- Calculated as Actual Equity - Regulation T Requirement.
- Can be withdrawn by the customer or used to purchase additional securities.
- Increases when market value rises or debit balance decreases.
Memory trick: Equity is King, but Excess is the Crown Jewel.