FINRA Series 7Investment Information and Suitable RecommendationsEasy
An investor wants to purchase 200 shares of XYZ stock at $75 per share in a margin account. Under Regulation T, what is the minimum initial margin deposit required?
- A$7,500
- B$15,000
- C$20,000
- D$10,000
Show answer & explanationAnswer & explanation
Correct answer: A. $7,500
Regulation T requires an initial margin deposit of 50% of the purchase price for long positions, but it also has a minimum requirement of $2,000 or 100% of the purchase price if less than $2,000. In this case, 50% of the purchase price is higher than $2,000.
Why the other options are wrong
- B. This would be 100% of the purchase price, which is not the typical Reg T initial margin for this scenario.
- C. This is an overestimation and an incorrect calculation.
- D. This is an incorrect calculation; it might be confusing the $2,000 minimum with the actual percentage requirement.
Regulation T Initial Margin (Long)
Regulation T, set by the Federal Reserve Board, dictates the initial margin requirements for securities transactions. For long stock purchases, it generally requires customers to deposit 50% of the purchase price, with a minimum of $2,000 (unless the full purchase price is less than $2,000).
- Current requirement is 50% of the purchase price.
- Minimum deposit is $2,000, unless the purchase price is less than $2,000 (then 100% of purchase price).
- Applies to equity, convertible bonds, and options.
Memory trick: Fifty percent or two grand, whichever is grander for the initial hand.