Short Margin Account: 30% Minimum Maintenance Threshold Calculation
A customer sells short 1,000 shares of Gamma Corp at $60 per share ($60,000 Short Market Value) in a margin account, depositing the required 50% ($30,000). The credit balance is $90,000 ($60,000 proceeds + $30,000 deposit). To what price can Gamma Corp rise before a maintenance margin call is triggered under FINRA Rule 4210?
In a short margin account, minimum maintenance is 30% of SMV. Maximum market value before call = Credit Balance / 1.30 = $90,000 / 1.30 = $69,230.77 ($69.23/share).
Complete Analysis & Legal Rationale
In a short margin account, Equity = Credit Balance - Short Market Value (SMV). FINRA Rule 4210 requires minimum equity of at least 30% of the SMV. A maintenance call is triggered when Equity < 0.30 × SMV. Setting Credit Balance - SMV = 0.30 × SMV yields Credit Balance = 1.30 × SMV, so SMV = Credit Balance / 1.30. Here: $90,000 / 1.30 = $69,230.77, or $69.23 per share.
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:
In a short margin account, minimum maintenance is 30% of SMV. Maximum market value before call = Credit Balance / 1.30 = $90,000 / 1.30 = $69,230.77 ($69.23/share).
Fails to adhere to margin rules for B.
Fails to adhere to margin rules for C.
Fails to adhere to margin rules for D.
Official Standard: In a short margin account, Equity = Credit Balance - Short Market Value (SMV). FINRA Rule 4210 requires minimum equity of at least 30% of the SMV. A m