Margin Calls, Maintenance, Liquidation, and Risk Controls
A margin call arises when equity falls below the maintenance requirement. The customer can satisfy it by depositing cash or eligible securities, or by selling securities (which reduces the debit and the market value). A crucial distinction: a maintenance call can be met by depositing enough to restore the maintenance requirement, whereas a Reg T initial call requires restoring the initial requirement. Questions often blur these; read whether the call is initial or maintenance. Firms typically give a short window (often a few business days, subject to house policy) to meet a call.
Liquidation is the firm's remedy: it may sell securities without prior notice and without consulting the customer, and it chooses which positions to liquidate. The firm is not required to sell the position that caused the call, and it may liquidate more than necessary to protect itself. Traps: assuming the customer can dictate which securities are sold; assuming notice is required; and assuming the firm must wait for the customer's response. Risk controls include house maintenance requirements above the regulatory floor, concentration limits, restricted lists, and monitoring systems. Firms must also supervise the margin function, document calls, and maintain records of liquidations.
Worked rule of thumb: Maintenance call amount = required maintenance equity - actual equity. If actual equity is $12,000 and required is $15,000, the call is $3,000. If the customer does nothing, the firm may liquidate; it need not wait for the deadline to pass if market conditions warrant action.