Margin Securities: Eligible and Ineligible Collateral, Concentration, and Substitution
Not every security can be margined, and not every margined security carries the same requirement. Marginable securities generally include listed and NASDAQ equities, many mutual funds, and certain bonds; non-marginable securities include most new issues for a seasoning period, certain low-priced or thinly traded stocks, and many OTC securities. Questions test whether a given security can be used as collateral and whether it can be purchased on margin at all. A trap is assuming that because a security is held in a margin account it automatically has loan value; eligibility is a separate determination.
Concentration is a major theme: when a customer's account is concentrated in a single security, firms impose higher maintenance requirements (often 50% or more) and may restrict further margining. Candidates should recognize that a concentrated position increases risk of a maintenance call and may trigger house requirements above the FINRA floor. Substitution refers to replacing collateral: when a customer withdraws margined securities, the remaining collateral must still satisfy the maintenance requirement, and the firm may require substitution of eligible collateral. A trap is assuming substitution is always permitted; if the withdrawal would drop equity below maintenance, the firm can refuse or demand additional collateral.
Worked rule of thumb: Before allowing a withdrawal or substitution, recompute maintenance equity against the remaining market value. If equity after withdrawal falls below the requirement, the request fails unless the customer deposits cash or eligible securities.