FINRA Series 7Investment Information and Suitable RecommendationsMedium
A client wants to purchase 200 shares of ABC stock at $60 per share in a margin account. Under Regulation T, what is the minimum initial deposit required?
- A$3,000
- B$4,000
- C$12,000
- D$6,000
Show answer & explanationAnswer & explanation
Correct answer: D. $6,000
The total value of the purchase is 200 shares * $60/share = $12,000. Under Regulation T, the initial margin requirement for long positions is 50% of the purchase price. So, 50% of $12,000 is $6,000. FINRA rules also state that the minimum initial equity for a margin account is $2,000, but in this case, 50% of the purchase price is greater, so the higher amount applies.
Why the other options are wrong
- A. This is 50% of $6,000, not the total purchase value.
- B. This is the minimum equity requirement for a margin account if the purchase value was less than $4,000, but not applicable here.
- C. This is the total purchase value, not the required initial deposit.
Regulation T Initial Margin (Long)
The percentage of the purchase price of securities that a customer must deposit when buying on margin, as set by the Federal Reserve Board.
- Currently 50% for most equity securities.
- Applies to the total market value of the securities purchased.
- FINRA also has a minimum initial equity requirement of $2,000, but Reg T's 50% usually takes precedence for larger trades.
Memory trick: Reg T sets the initial 'tab' at half.