A client sells 100 shares of XYZ stock short at $50 per share in a margin account. Under Regulation T, what is the minimum initial margin requirement the client must deposit?
- A$3,000
- B$2,000
- C$5,000
- D$2,500
Show answer & explanationAnswer & explanation
Correct answer: D. $2,500
For short sales, Regulation T requires an initial deposit of 50% of the market value of the short sale. However, there's also a minimum short margin requirement: for sales between $2.50 and $5.00 per share, $2.50 per share; for sales above $5.00 per share, $5.00 per share or 30% of the market value, whichever is greater. Since 50% of $5,000 is $2,500, and $5.00 per share is $500, the greater of these is $2,500. Additionally, the FINRA minimum for a short position is $2,000 or 100% of the market value, whichever is greater, up to $2.50 per share ($2.50/share x 100 shares = $250), then $2.50 x 100 shares = $250 for $2.50-$5 range. For stock above $5, it is 30% or $5 per share, whichever is greater. Since $50 is above $5, the Reg T minimum of 50% applies, or $5.00/share, whichever is greater. $5000 * 0.50 = $2500. The FINRA minimum for a short position is $2,000, so the Reg T minimum of $2,500 applies.
Why the other options are wrong
- A. This would be 60% of the market value, which is not the standard Reg T requirement.
- B. This is often the FINRA minimum for long positions, but not directly applicable to a short sale of this value.
- C. This represents 100% of the market value, which is not the initial margin required by Reg T.
Short Sale Initial Margin (Reg T)
Under Regulation T, the initial margin requirement for a short sale is generally 50% of the market value of the securities sold short. There are also minimum dollar requirements depending on the stock price.
- Generally 50% of the market value.
- Minimum $2,000 or 100% of market value (whichever is greater) for stock priced under $5.
- Minimum $2.50/share for stock priced $2.50-$5.
- Minimum $5.00/share or 30% of market value (whichever is greater) for stock priced above $5.
Memory trick: Shorts Need 50% Down, Minima Matter.