Restricted Margin Accounts: Definition, Trading Rules, and Retention Requirements
A margin account has a Long Market Value of $50,000 and a Debit Balance of $28,000 (Equity = $22,000). Regulation T is 50%. How is this account classified, and what occurs if the customer sells $10,000 of stock?
A margin account is 'restricted' when Equity is between Reg T (50%) and Maintenance (25%). When securities are sold in a restricted account, 50% is credited to SMA and 50% reduces debit.
Complete Analysis & Legal Rationale
An account is 'restricted' when equity falls below the Regulation T 50% initial requirement but remains above the FINRA 25% minimum maintenance level. The customer is NOT required to deposit cash to fix a restricted account. If securities are sold in a restricted account, the customer does not have to use 100% to pay down the debit; under retention rules, 50% of sales proceeds reduce the debit balance and 50% is released to the customer as SMA.
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:
A margin account is 'restricted' when Equity is between Reg T (50%) and Maintenance (25%). When securities are sold in a restricted account, 50% is credited to SMA and 50% reduces debit.
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: An account is 'restricted' when equity falls below the Regulation T 50% initial requirement but remains above the FINRA 25% minimum maintenance level.