FINRA Series 7Investment Information and Suitable RecommendationsEasy
A client sells 100 shares of XYZ stock short at $70 per share in a margin account. Under Regulation T, what is the minimum initial margin requirement for this transaction?
- A$2,000
- B$7,000
- C$3,500
- D$10,000
Show answer & explanationAnswer & explanation
Correct answer: C. $3,500
For short sales, Regulation T requires an initial margin deposit of 50% of the market value of the shorted stock. The calculation is 100 shares * $70/share = $7,000 market value. 50% of $7,000 is $3,500.
Why the other options are wrong
- A. This is the minimum margin requirement for transactions under $4,000, not applicable here.
- B. This represents the full market value of the shorted stock, not the margin requirement.
- D. This would be the margin requirement if the stock price was $200 per share or if the requirement was 100%.
Short Sale Initial Margin (Reg T)
The minimum percentage of the market value of a short sale that must be deposited by an investor in a margin account, as mandated by the Federal Reserve Board's Regulation T.
- Currently 50% of the market value for short sales.
- Minimum amount for short sales under $4,000 is $2,000.
- Ensures the investor has sufficient collateral to cover potential losses.
Memory trick: Shorting stock? Half the value, that's your starting 'T'ab.