Regulation T 50% Initial Margin Requirement on Stock Purchase
An investor with a new margin account purchases 400 shares of XYZ stock at $50 per share ($20,000 total). Assuming Regulation T is 50%, what is the required initial margin deposit?
Under Federal Reserve Board Regulation T, the initial margin requirement for purchasing marginable equities is 50% of the purchase price. $20,000 × 50% = $10,000 deposit in cash.
Complete Analysis & Legal Rationale
The customer deposits $10,000 cash; the broker-dealer loans the remaining $10,000 (Debit Balance). Long Market Value (LMV) = $20,000, Debit Register (DR) = $10,000, Equity (EQ) = $10,000.
Mathematical Step-by-Step Derivation
- Step 1: Total Purchase Amount = 400 shares × $50 = $20,000.
- Step 2: Reg T Requirement = 50% × $20,000 = $10,000 deposit.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
50% of $20,000 equals the required $10,000 deposit.
25% is the FINRA minimum maintenance requirement, not initial Reg T.
$2,000 is the FINRA minimum account equity floor, not 50% of $20,000.
100% cash applies to cash accounts or non-marginable securities, not standard margin purchases.
Official Standard: Mandates 50% initial margin for equity purchases.