Margin
Margin Intro  |   Risks   |   Marginable Securities  |   Initial Margin
Minimum Equity  |   SRO Requirements  |   Interest on Debit Balances

Introduction to Margin
The securities industry, in order to encourage securities trading activity, permits securities Broker-Dealers to loan their customers part of the cost of the securities they purchase. Through this borrowing from their Broker Dealers to buy securities, the customers are able to buy more securities with the same amount of cash.

Because the Broker Dealer will charge the customer interest on the amount loaned to the customer, borrowing on margin is usually only suitable for the customer who is seeking short-term capital gains where the gain is expected to exceed the costs involved in borrowing.


Risks associated with trading of margin


  • When trading on margin, customers can lose more funds than initially desposited.
  • The firm can force the sale of the securities in the customer's account without notice to the customer.
  • The firm can dictate which security is selected for liquidation.
  • The customer is not entitled to an extension of time on a margin call.


Marginable Securities


A Broker Dealer may only extend credit on securities which are deemed "marginable" by the Federal Reserve Board (FRB).

Marginable securities include:
  • All "listed" securities
  • Securities on the FINRA's National Market System (NMS/NMM).
  • OTC securities on the FRB margin list
  • Government and municipal bonds
  • Additional securities may be marginable, subject to approval by the FRB and your Broker-Dealer.


Initial Margin

Initial Margin is the amount loaned to you based on the deposit "Equity" required to be put up by the customer when buying securities on credit from a Broker/Dealer. The percentage required to be deposited can change from time to time and is set by the Federal Reserve Board. The amount required is often called the "RegT" percentage. "RegT" applies to each new margin purchase the customer makes.


Minimum Equity

On completion of any new transaction, or withdrawal of funds or securities from the account:
  • If the new transaction is a purchase of less than $2,000.00, and there is no debit balance, the minimum account equity required is equal to the amount of the purchase.
  • If there is a debit balance the equity in the account must be at least $2,000.00.
  • If there is a debit balance no withdrawals may be made which would reduce the equity below $2,000.00.
  • If the new transaction is a purchase of less than $2000.00, and there is no debit balance, the minimum account equity required is equal to the amount of the purchase.


Self-Regulatory Organizations (SRO) Requirements:

  • NYSE and FINRA minimum maintenance requirements in an existing long margin account is 25% equity to current market value. Scottsdale Capital Advisors may require higher minimums than the FINRA or NYSE.
  • All short sales may only be effected in a margin account. The Federal Reserve Board requires a minimum initial deposit of $2000.00 or 50% of the value of the trade; whichever figure is greater.
  • NYSE and FINRA minimum maintenance requirements on a short account is 30% equity to current market value. Penson/Scottsdale Capital Advisors Securities may require higher minimums than NYSE or FINRA.


Interest on Debit Balances

Interest on debit balances in long accounts are set at 9.25%.

 

 

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