Question 1

What is the minimum equity required to open a new margin account under FINRA rules?

Accepted Answer

$2,000 in equity (or the full cost of the securities if the purchase is less than $2,000). This is the minimum deposit requirement before any Regulation T calculation applies.

Question 2

What is Regulation T, and what initial margin percentage does it currently set for equity securities?

Accepted Answer

Regulation T is a Federal Reserve Board rule governing the extension of credit by broker-dealers. It currently requires an initial margin deposit of 50% of the purchase price of equity securities.

Question 3

What is the maximum loan value a broker-dealer can extend on a marginable equity security under Regulation T?

Accepted Answer

The maximum loan value is 50% of the market value of the security, since Regulation T requires the customer to deposit 50% and the broker-dealer may lend the remaining 50%.

Question 4

What does it mean for a margin account to be 'restricted'?

Accepted Answer

A margin account is restricted when the equity falls below the Regulation T initial requirement of 50%, meaning the debit balance exceeds 50% of the current market value. The customer cannot make new purchases without depositing additional funds.

Question 5

What is a margin agreement, and what three documents does it typically include?

Accepted Answer

A margin agreement is the contract between the customer and broker-dealer governing the margin account. It typically includes the credit agreement (interest terms), the hypothecation agreement (pledging securities as collateral), and the loan consent agreement (allowing the firm to lend the customer's securities).

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