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SIAA Margin Lending study materials
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SIAA Margin Lending practice questions

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Question 1Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Under Regulation T, what is the standard initial margin requirement for the purchase of a common stock that qualifies as a margin security?

  1. 30 percent of the purchase price
  2. 25 percent of the purchase price
  3. 100 percent of the purchase price
  4. 50 percent of the purchase price Correct answer.

Explanation

Regulation T sets the initial margin requirement for equity securities at 50 percent of the total purchase price, meaning the customer must deposit at least half of the cost. The remaining half may be financed through the broker-dealer. This 50 percent floor applies at account opening and on new purchases.

Question 2Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

FINRA maintenance margin for a long position in common stock is best described as which of the following?

  1. The minimum equity that must be maintained after the purchase, generally 50 percent of market value
  2. The minimum deposit required at the time of purchase, generally 50 percent of cost
  3. The minimum equity that must be maintained after the purchase, generally 25 percent of market value Correct answer.
  4. The maximum amount a customer may borrow against securities, generally 75 percent of cost

Explanation

Maintenance margin is a continuing requirement that applies after a position is established, and for long common stock it is generally 25 percent of the current market value. If equity falls below that level, the firm issues a maintenance call. The 50 percent figure is the Regulation T initial requirement, not the maintenance level.

Question 3Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer buys 1,000 shares of a margin-eligible stock at $40 per share and deposits the Regulation T minimum. What is the debit balance in the account immediately after the trade?

  1. $30,000
  2. $20,000 Correct answer.
  3. $10,000
  4. $40,000

Explanation

The total cost is $40,000, and the Regulation T initial requirement is 50 percent, or $20,000 of equity. The debit balance equals the amount the firm lends, which is the remaining $20,000. Equity plus debit balance always equals the long market value.

Question 4Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following securities is generally NOT margin-eligible under Regulation T?

  1. A stock trading at $2 per share on a national exchange Correct answer.
  2. A listed convertible bond trading at par
  3. A stock trading at $8 per share on a national exchange
  4. A listed common stock trading at $45 per share

Explanation

Regulation T excludes low-priced stocks trading below $5 per share from margin eligibility, so a $2 stock may not be purchased on margin. Stocks at $5 or above that meet listing criteria are margin-eligible. Convertible bonds listed on an exchange are also generally margin-eligible.

Question 5Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account holds stock with a market value of $30,000 and a debit balance of $22,000. What is the account's current equity and is a maintenance call triggered?

  1. Equity is $22,000, and no maintenance call is triggered
  2. Equity is $8,000, and a maintenance call is triggered because equity is below $15,000
  3. Equity is $8,000, and a maintenance call is triggered because equity is below $7,500
  4. Equity is $8,000, and no maintenance call is triggered because equity exceeds $7,500 Correct answer.

Explanation

Equity equals market value minus debit balance, or $30,000 minus $22,000, which is $8,000. The maintenance requirement is 25 percent of $30,000, or $7,500. Because $8,000 exceeds $7,500, the account is above maintenance and no call is issued.

Question 6Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer sells short 500 shares at $60 per share in a margin account. Under Regulation T, what is the required initial deposit?

  1. $15,000, which is 50 percent of the short sale proceeds Correct answer.
  2. $7,500, which is 25 percent of the short sale proceeds
  3. $30,000, which is 100 percent of the short sale proceeds
  4. $0, because short sales are funded entirely by the proceeds

Explanation

For a short sale, Regulation T requires a deposit of 50 percent of the short sale value, in addition to the proceeds of the sale being held in the account. Here 50 percent of $30,000 is $15,000. The short proceeds are retained as collateral and cannot be used by the customer.

Question 7Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has a long margin account with $50,000 market value and a $30,000 debit balance. What is the account's excess equity?

  1. $12,500 Correct answer.
  2. $5,000
  3. $7,500
  4. $20,000

Explanation

Equity is $50,000 minus $30,000, or $20,000. The maintenance requirement is 25 percent of $50,000, or $12,500. Excess equity is equity above the maintenance requirement, which is $20,000 minus $12,500, or $7,500; however, excess over the Regulation T requirement of $25,000 is negative, so the special memorandum account balance is zero.

Question 8Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

What is the primary purpose of the Special Memorandum Account (SMA)?

  1. To hold customer cash segregated from the firm's proprietary assets
  2. To record the debit balance owed by the customer to the broker-dealer
  3. To track and preserve a customer's excess equity so it can be used for future purchases even if market values later decline Correct answer.
  4. To calculate the maintenance margin requirement on short positions

Explanation

The SMA is a memorandum ledger that records excess equity generated by market appreciation or deposits. Once credited, SMA generally is not reduced by subsequent market declines, so the customer retains buying power. It is not an asset account and does not hold cash or securities.

Question 9Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer deposits $10,000 in cash into a long margin account that already meets all requirements. What is the effect on the Special Memorandum Account?

  1. SMA is unchanged because cash deposits do not create buying power
  2. SMA increases by $10,000 Correct answer.
  3. SMA increases by $5,000
  4. SMA decreases by $10,000

Explanation

A cash deposit into a margin account creates dollar-for-dollar buying power and is credited to the SMA in full. The deposit increases equity without increasing the debit balance. Therefore the SMA rises by the full $10,000.

Question 10Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's margin account has a market value of $80,000 and a debit balance of $50,000. What is the maximum amount the customer may withdraw while keeping the account at or above the maintenance requirement?

  1. $20,000
  2. $10,000 Correct answer.
  3. $30,000
  4. $40,000

Explanation

Equity is $30,000 and the maintenance requirement is 25 percent of $80,000, or $20,000. The amount that may be withdrawn without falling below maintenance is the excess of $10,000. Withdrawing more would create a maintenance deficiency.

Question 11Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Under FINRA rules, how quickly must a customer meet a maintenance margin call?

  1. As promptly as possible, typically within a few business days as designated by the firm Correct answer.
  2. Within 90 days of the call
  3. By the close of the same trading day in all cases
  4. Within 30 calendar days of the call

Explanation

FINRA guidance directs that maintenance calls be met promptly, with firms typically allowing a short window of a few business days. The exact deadline is set by the firm's written procedures. Unlike Regulation T calls, maintenance calls are not governed by a fixed statutory payment period.

Question 12Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer fails to meet a Regulation T initial margin call by the payment date. What is the standard consequence?

  1. The firm may extend the payment period indefinitely at its discretion
  2. The firm must freeze the account for 90 days, requiring cash in advance for new purchases Correct answer.
  3. The firm must immediately liquidate all positions and close the account permanently
  4. The customer is permitted to make the purchase on margin without any penalty

Explanation

When a customer does not meet a Regulation T call, the account is frozen for 90 days, and new purchases must be made with cash paid in advance. The freeze restricts further extensions of credit rather than forcing liquidation. The firm may also sell out the position to satisfy the deficiency.

Question 13Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

How many business days does a customer generally have to meet a Regulation T initial margin call?

  1. One business day after the trade date
  2. Two business days after the trade date Correct answer.
  3. Five business days after the trade date
  4. Ten business days after the trade date

Explanation

Regulation T requires payment within two business days after the regular way settlement date, which in practice gives the customer a short window measured from the trade. Firms often notify customers promptly so funds arrive in time. Missing the deadline triggers a 90-day account freeze.

Question 14Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer buys $20,000 of stock on margin and the stock subsequently rises to $30,000 in market value. Assuming no other activity, how does the SMA change?

  1. SMA is unaffected by market appreciation
  2. SMA increases by $10,000
  3. SMA decreases by $5,000
  4. SMA increases by $5,000 Correct answer.

Explanation

Equity rises by the $10,000 appreciation, but the Regulation T requirement rises by 50 percent of the increase, or $5,000. The excess above the requirement therefore increases by $5,000, and that amount is credited to SMA. Market appreciation is credited to SMA only to the extent it exceeds the initial requirement.

Question 15Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has a short margin account with $40,000 market value and $24,000 equity. What is the maintenance requirement and the excess equity?

  1. Requirement $10,000; excess $14,000
  2. Requirement $20,000; excess $4,000
  3. Requirement $12,000; excess $12,000 Correct answer.
  4. Requirement $12,000; excess $24,000

Explanation

Short accounts must maintain equity of at least 30 percent of market value under FINRA rules, which is $12,000 here. Excess equity equals $24,000 minus $12,000, or $12,000. The 30 percent short maintenance level is higher than the 25 percent long requirement.

Question 16Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following best describes the minimum equity requirement under FINRA Rule 4210 for a new margin account?

  1. $10,000 in cash only
  2. $2,000 in cash or qualifying securities Correct answer.
  3. $25,000 in cash only
  4. $5,000 in cash or qualifying securities

Explanation

FINRA requires a minimum of $2,000 in equity, in cash or qualifying securities, to open and maintain a margin account. This floor applies regardless of the size of the intended trade. If the initial deposit is below $2,000, the account cannot be approved for margin.

Question 17Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A pattern day trader is subject to a special minimum equity requirement. What is that amount?

  1. $2,000
  2. $50,000
  3. $10,000
  4. $25,000 Correct answer.

Explanation

FINRA defines a pattern day trader as a customer who executes four or more day trades within five business days, provided those trades exceed six percent of total trades. Such customers must maintain at least $25,000 in equity at all times. Falling below that level restricts day trading until equity is restored.

Question 18Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer wishes to purchase $60,000 of margin-eligible stock and wants to deposit the maximum permitted amount of eligible securities instead of cash. What is the required deposit value under Regulation T?

  1. $15,000 in eligible securities
  2. $60,000 in eligible securities
  3. No deposit is required if the securities are margin-eligible
  4. $30,000 in eligible securities, subject to the firm's loan value rules Correct answer.

Explanation

The Regulation T initial requirement is 50 percent of the $60,000 purchase, or $30,000. Eligible securities may be deposited in lieu of cash, but the firm assigns loan value to them under its rules. The deposit must satisfy the full 50 percent requirement.

Question 19Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account has $60,000 market value and a $45,000 debit balance. What is the buying power available from the Special Memorandum Account?

  1. $5,000
  2. $15,000
  3. $0 Correct answer.
  4. $7,500

Explanation

Equity is $15,000 and the Regulation T requirement is 50 percent of $60,000, or $30,000. Because equity is below the initial requirement, no excess exists and the SMA is zero. Buying power from SMA arises only when equity exceeds the 50 percent requirement.

Question 20Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following statements about Regulation T and FINRA rules is accurate?

  1. Regulation T governs initial margin and extension of credit, while FINRA rules govern maintenance margin Correct answer.
  2. Both initial and maintenance margin are set exclusively by FINRA
  3. Regulation T governs maintenance margin, while FINRA rules govern initial margin
  4. Both initial and maintenance margin are set exclusively by the Federal Reserve Board

Explanation

Regulation T, issued by the Federal Reserve Board, sets initial margin and governs the extension of credit by broker-dealers. FINRA rules, notably Rule 4210, establish maintenance margin requirements. The two regimes operate together to regulate margin accounts.

Question 21Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer sells 200 shares short at $50 and the stock later rises to $70. What is the maintenance requirement at the new price, and is there a call if equity is $9,000?

  1. Requirement $3,500; no call because equity exceeds the requirement
  2. Requirement $4,200; a call because equity is below the requirement
  3. Requirement $4,200; no call because equity exceeds the requirement Correct answer.
  4. Requirement $7,000; a call because equity is below the requirement

Explanation

The short maintenance requirement is 30 percent of market value, and 30 percent of $14,000 is $4,200. With equity of $9,000, the account exceeds the requirement, so no call is issued. Rising prices on short positions increase the requirement and reduce equity, but here the cushion remains.

Question 22Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer makes a same-day purchase and sale of the same stock in a margin account. How is the transaction treated for margin purposes?

  1. As a long-term capital gain subject to no margin rules
  2. As a short sale requiring a 50 percent deposit
  3. As a day trade, which counts toward pattern day trader status and requires settlement in the account Correct answer.
  4. As an ordinary purchase that must be held overnight before margin applies

Explanation

A purchase and sale of the same security on the same day is a day trade. Day trades count toward the four-in-five-business-day test for pattern day trader status. Pattern day traders must maintain $25,000 in equity and are subject to day trading buying power limits.

Question 23Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has $12,000 of SMA in a long margin account and wishes to buy additional stock. What is the maximum purchase permitted using the SMA?

  1. $48,000
  2. $24,000 Correct answer.
  3. $6,000
  4. $12,000

Explanation

SMA represents excess equity that can support new purchases at the 50 percent initial requirement. Each dollar of SMA therefore supports two dollars of purchase, so $12,000 of SMA permits a $24,000 purchase. The resulting position carries a $12,000 debit increase.

Question 24Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following is a permissible use of margin-eligible securities in a margin account?

  1. Pledging them as collateral to support a margin loan Correct answer.
  2. Using them to satisfy a Regulation T call at full face value regardless of loan value
  3. Transferring them to avoid maintenance requirements
  4. Selling them without any settlement obligation

Explanation

Margin-eligible securities may be pledged as collateral for a margin loan, and the firm assigns loan value to them. Their collateral value is determined by the firm's loan value rules rather than full face value. Pledging does not eliminate settlement or maintenance obligations.

Question 25Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account has a market value of $100,000, a debit balance of $60,000, and an SMA of $10,000. If the market value falls to $70,000, what happens to the SMA and the maintenance status?

  1. SMA is reduced to zero, and equity of $10,000 is below the $17,500 requirement, so a call occurs Correct answer.
  2. SMA is reduced to $5,000, and no call occurs
  3. SMA remains $10,000, and no call occurs because equity exceeds the requirement
  4. SMA remains $10,000, and the account is at maintenance because equity of $10,000 exceeds $17,500? No, a call occurs

Explanation

Equity after the decline is $70,000 minus $60,000, or $10,000, while the maintenance requirement is 25 percent of $70,000, or $17,500. A maintenance call is therefore issued. SMA is a memorandum balance that is generally not reduced by market declines, but it cannot cure a maintenance deficiency.

Question 26Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Under Regulation T, what is the standard initial margin requirement for a customer purchasing margin-eligible securities?

  1. 25% of the purchase price
  2. 30% of the purchase price
  3. 50% of the purchase price Correct answer.
  4. 100% of the purchase price

Explanation

Regulation T sets the initial margin requirement at 50% of the total purchase price for margin-eligible securities. This means the customer must deposit at least half of the cost, with the broker-dealer extending credit for the remainder. FINRA may impose higher requirements in specific situations, but 50% is the baseline federal standard.

Question 27Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which regulation establishes the initial margin requirements that broker-dealers must apply when extending credit to customers for securities purchases?

  1. Regulation U
  2. Regulation S-K
  3. Regulation X
  4. Regulation T Correct answer.

Explanation

Regulation T governs the extension of credit by broker-dealers to customers for securities transactions and sets the initial margin rules. Regulation U covers bank lending for securities purchases, while Regulation X addresses borrowers who obtain credit in violation of these rules. Regulation S-K is a disclosure regulation unrelated to margin lending.

Question 28Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer buys 1,000 shares of stock at $40 per share in a margin account. What is the minimum amount the customer must deposit under Regulation T?

  1. $20,000 Correct answer.
  2. $8,000
  3. $10,000
  4. $40,000

Explanation

The total purchase is 1,000 shares times $40, or $40,000. Regulation T requires an initial deposit of 50% of the purchase price, which equals $20,000. The remaining $20,000 may be borrowed from the broker-dealer.

Question 29Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following securities is generally NOT eligible for margin credit under Regulation T?

  1. A listed corporate bond meeting margin eligibility criteria
  2. A listed common stock included on the Federal Reserve's marginable list
  3. A newly issued stock with no established trading market Correct answer.
  4. A stock trading on a national exchange that meets FINRA margin eligibility standards

Explanation

Margin eligibility generally requires a security to be registered on a national securities exchange or to meet specified trading and price criteria. A newly issued stock with no established market typically lacks the required trading history and is not marginable. Listed stocks and qualifying bonds that meet the standards are eligible for margin credit.

Question 30Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

What is the FINRA maintenance margin requirement for a long position in a margin account?

  1. 50% of the market value
  2. 25% of the market value Correct answer.
  3. 30% of the market value
  4. 10% of the market value

Explanation

FINRA Rule 4210 requires a minimum maintenance margin of 25% of the current market value for long margin positions. If equity falls below that level, the account is subject to a maintenance margin call. The 50% figure applies to initial margin under Regulation T, not maintenance.

Question 31Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following best describes the purpose of a maintenance margin call?

  1. To require the customer to restore equity to the minimum maintenance level Correct answer.
  2. To require the customer to repay the entire debit balance immediately
  3. To convert the account from margin to cash status permanently
  4. To increase the customer's buying power in the account

Explanation

A maintenance margin call arises when equity falls below the FINRA minimum maintenance requirement. The customer must deposit cash or securities, or sell securities, to bring equity back up to the required level. The call does not demand full repayment of the debit or force conversion to a cash account.

Question 32Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

What is the minimum maintenance margin requirement for a short position in a margin account under FINRA rules?

  1. 30% of the current market value Correct answer.
  2. 25% of the current market value
  3. 100% of the current market value
  4. 50% of the current market value

Explanation

FINRA Rule 4210 requires maintenance margin of 30% of the current market value for short positions. Because a short seller profits when prices fall and loses when prices rise, the higher percentage provides additional cushion. The 25% level applies to long positions, not shorts.

Question 33Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following statements accurately describes the concept of buying power in a margin account?

  1. It is the total debit balance owed to the broker-dealer
  2. It equals the total market value of securities currently held in the account
  3. It is the amount of cash the customer has deposited over the life of the account
  4. It reflects the amount of securities a customer may purchase using available equity and SMA Correct answer.

Explanation

Buying power represents the additional purchasing capacity a customer has, derived from excess equity and any SMA. It allows the customer to acquire securities using existing equity as margin. Market value, cumulative deposits, and debit balance are separate measures that do not define buying power.

Question 34Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has a long margin account with $40,000 market value and a $24,000 debit balance. What is the account's excess equity?

  1. $6,000 Correct answer.
  2. $4,000
  3. $16,000
  4. $10,000

Explanation

Equity equals market value minus debit balance, or $40,000 minus $24,000, which is $16,000. The maintenance requirement is 25% of market value, or $10,000. Excess equity is equity minus the requirement, or $16,000 minus $10,000, which equals $6,000.

Question 35Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer deposits $6,000 in cash into a long margin account that already exceeds all requirements. How does this deposit affect the account's Special Memorandum Account?

  1. SMA increases by $3,000
  2. SMA is unaffected by cash deposits
  3. SMA increases by $6,000 Correct answer.
  4. SMA decreases by $6,000

Explanation

A cash deposit into a margin account that is already above the maintenance requirement adds directly to the Special Memorandum Account. The SMA records the account's excess equity available for future use. Because the deposit is unrestricted cash, the full $6,000 is credited to SMA.

Question 36Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account has $50,000 market value, a $20,000 debit balance, and an SMA of $5,000. The customer buys $10,000 of additional stock. What is the resulting debit balance?

  1. $30,000 Correct answer.
  2. $25,000
  3. $20,000
  4. $35,000

Explanation

A margin purchase increases the debit balance by the full purchase amount because the broker-dealer advances the funds. The existing debit of $20,000 plus the $10,000 purchase equals $30,000. SMA is not applied to reduce the debit unless the customer specifically uses it to do so.

Question 37Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer sells short 300 shares at $80 per share. What is the required Regulation T initial deposit?

  1. $24,000
  2. $6,000
  3. $12,000 Correct answer.
  4. $9,600

Explanation

For a short sale, Regulation T requires a deposit of 50% of the short sale proceeds. The proceeds are 300 shares times $80, or $24,000, and 50% of that is $12,000. The proceeds themselves are held as collateral, and the deposit adds to that collateral.

Question 38Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following is true regarding the timing of payment for a margin purchase under Regulation T?

  1. Payment is due within five business days of the trade date
  2. Payment is generally due within two business days of the trade date Correct answer.
  3. Payment is due on the trade date itself
  4. Payment is due within ten business days of the trade date

Explanation

Regulation T generally requires payment for securities purchased in a margin account within two business days of the trade date, consistent with the standard settlement cycle. If the customer fails to meet the call, the broker-dealer may sell the securities and restrict the account. The trade date and longer periods do not represent the standard Reg T payment deadline.

Question 39Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's short margin account has $60,000 market value and $30,000 equity. What is the maintenance requirement, and does the account have excess equity?

  1. $18,000 requirement, with $12,000 excess Correct answer.
  2. $30,000 requirement, with no excess
  3. $18,000 requirement, with no excess
  4. $15,000 requirement, with $15,000 excess

Explanation

Short maintenance margin is 30% of market value, or 30% of $60,000, which equals $18,000. Equity of $30,000 exceeds the requirement by $12,000, so the account has excess equity. The 25% long requirement does not apply to short positions.

Question 40Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following statements about the Special Memorandum Account is accurate?

  1. SMA represents excess equity that may be used for future purchases or withdrawals Correct answer.
  2. SMA decreases automatically whenever market value rises
  3. SMA is a separate cash account held at the broker-dealer
  4. SMA can only be created by depositing cash into the account

Explanation

SMA records excess equity in a margin account and preserves it for future use even if market values later decline. It is not a separate cash account but an accounting entry maintained by the broker-dealer. Cash deposits and rising market values can both increase SMA.

Question 41Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account has $70,000 market value and a $30,000 debit balance. What is the maximum amount the customer may withdraw while keeping the account at the maintenance requirement?

  1. $22,500 Correct answer.
  2. $40,000
  3. $10,000
  4. $17,500

Explanation

Equity is $70,000 minus $30,000, or $40,000, and the 25% maintenance requirement is $17,500. Excess equity is $40,000 minus $17,500, which equals $22,500, and that is the maximum withdrawal that keeps the account at maintenance. Withdrawing more would create a maintenance deficiency.

Question 42Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following is a key distinction between Regulation T and FINRA Rule 4210?

  1. Both regulations apply only to short sales
  2. Regulation T sets initial margin while FINRA Rule 4210 sets maintenance margin Correct answer.
  3. Both regulations set only initial margin requirements
  4. Regulation T sets maintenance margin while FINRA Rule 4210 sets initial margin

Explanation

Regulation T, issued by the Federal Reserve, establishes initial margin requirements for credit extensions by broker-dealers. FINRA Rule 4210 establishes maintenance margin requirements that apply after the position is established. The two frameworks work together to govern different phases of a margin account.

Question 43Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has $8,000 of SMA and wishes to purchase additional stock on margin. What is the maximum purchase amount the SMA can support?

  1. $32,000
  2. $8,000
  3. $16,000 Correct answer.
  4. $4,000

Explanation

SMA can be used as the required initial margin for a new purchase. Because Regulation T requires 50% initial margin, each dollar of SMA supports two dollars of purchasing power. Therefore $8,000 of SMA supports a purchase of up to $16,000.

Question 44Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer buys $30,000 of stock on margin and the stock rises to $45,000 in market value. Assuming no other activity, what is the amount of SMA generated by the appreciation?

  1. $11,250
  2. $7,500 Correct answer.
  3. $15,000
  4. $3,750

Explanation

The original debit balance is $15,000, which is 50% of the $30,000 purchase. At a market value of $45,000, equity is $30,000 and the 25% maintenance requirement is $11,250. Excess equity is $30,000 minus $11,250, which equals $18,750, but only the increase above the prior excess of $11,250, or $7,500, is newly generated SMA.

Question 45Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's long margin account has $90,000 market value, a $50,000 debit balance, and an SMA of $10,000. If the market value declines to $70,000, what is the account's excess equity?

  1. $2,500 Correct answer.
  2. $0
  3. $10,000
  4. $20,000

Explanation

At a market value of $70,000, equity is $70,000 minus $50,000, or $20,000. The 25% maintenance requirement is $17,500. Excess equity is $20,000 minus $17,500, which equals $2,500. SMA is a separate record and does not change the calculation of current excess equity.

Question 46Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer's short margin account has $50,000 market value and $20,000 equity. If the market value rises to $60,000, what is the maintenance deficiency?

  1. $2,000 Correct answer.
  2. $0
  3. $8,000
  4. $5,000

Explanation

In a short account, equity equals the original credit balance minus the current market value. With a $70,000 credit balance, equity at $60,000 market value is $10,000. The 30% maintenance requirement is $18,000, so the deficiency is $18,000 minus $10,000, which equals $8,000.

Question 47Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer has a long margin account with $120,000 market value, a $60,000 debit balance, and an SMA of $15,000. The customer uses the SMA to purchase additional stock. What is the maximum additional market value the customer can acquire?

  1. $30,000 Correct answer.
  2. $60,000
  3. $15,000
  4. $45,000

Explanation

SMA may serve as the initial margin for new purchases, and Regulation T requires 50% initial margin. Therefore $15,000 of SMA supports up to $30,000 of additional market value. Using SMA does not change the fact that the new purchase must satisfy the 50% initial requirement.

Question 48Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following best explains why short positions carry a higher maintenance margin requirement than long positions?

  1. Short sellers must pay dividends, which the margin requirement offsets
  2. Short sellers face theoretically unlimited loss as prices rise, requiring a larger equity cushion Correct answer.
  3. Short sellers are prohibited from depositing cash as collateral
  4. Short positions are always less liquid than long positions

Explanation

A short seller loses as the stock price rises, and there is no upper limit on how high a price can climb. The 30% maintenance requirement provides a larger cushion than the 25% long requirement to protect the broker-dealer. Dividend obligations and liquidity do not explain the higher percentage.

Question 49Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

A customer fails to meet a maintenance margin call. What action may the broker-dealer take under FINRA rules?

  1. Liquidate enough securities to restore the required equity Correct answer.
  2. Transfer the account to another customer without consent
  3. Extend the call indefinitely without restriction
  4. Reduce the maintenance requirement to 10%

Explanation

When a customer does not meet a maintenance margin call, the broker-dealer may sell securities in the account to restore equity to the required level. The firm is not obligated to wait indefinitely for payment. The broker-dealer cannot unilaterally change regulatory requirements or transfer the account without proper authorization.

Question 50Margin Account Regulation and Requirements (Regulation T, FINRA rules, initial and maintenance margin)

Which of the following describes how a broker-dealer must treat a customer who has been restricted for failing to meet a Regulation T call?

  1. The customer may immediately resume margin purchases without restriction
  2. The customer must prepay in full for 90 days before margin privileges may be restored Correct answer.
  3. The restriction applies only to short sales for 30 days
  4. The customer must close all accounts permanently

Explanation

Under Regulation T, a customer who fails to meet an initial margin call is restricted from margin purchasing for 90 days unless the customer prepays in full for the securities. This penalty encourages timely payment of margin calls. The restriction does not apply only to short sales and does not require permanent account closure.