Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesHard
A client has a margin account with a market value of $30,000 and a debit balance of $12,000. If the Regulation T (Reg T) requirement is 50%, what is the client's current excess equity?
- A$6,000
- B$18,000
- C$3,000
- D$9,000
Show answer & explanationAnswer & explanation
Correct answer: C. $3,000
Equity in the account is Market Value - Debit Balance = $30,000 - $12,000 = $18,000. The Reg T requirement is 50% of the market value, which is 0.50 * $30,000 = $15,000. Excess equity is the current equity minus the Reg T requirement: $18,000 - $15,000 = $3,000.
Why the other options are wrong
- A. This might be the result of incorrect calculation of equity or Reg T.
- B. This is the total equity in the account, not the excess equity.
- D. This could be a miscalculation such as using 50% of the debit balance.
Excess Equity (Margin Account)
The amount of equity in a margin account that exceeds the Regulation T (initial margin) requirement.
- Represents funds available for withdrawal or additional purchases without a margin call.
- Calculated as: Current Equity - Reg T Requirement.
- Equity = Market Value - Debit Balance.
Memory trick: Equity is 'MV minus DB', Excess is 'Equity minus Reg T'.