Business Definition for: margin account
margin account
brokerage account allowing customers to buy securities with money borrowed from the broker. Margin accounts are governed by
Regulation T
, by the National Association of Securities Dealers (NASD), by the New York Stock Exchange, and by individual brokerage house rules. Margin requirements can be met with cash or with eligible securities. In the case of securities sold short, an equal amount of the same securities is normally borrowed without interest from another broker to cover the sale, while the proceeds are kept in escrow as collateral for the lending broker.
See also
minimum maintenance
margin account
brokerage account allowing customers to buy securities with money borrowed from the broker. Margin accounts are governed by
Regulation T
of the Federal Reserve Board, by the National Association of Securities Dealers (NASD), by the New York Stock Exchange, and by individual brokerage house rules.
Related Terms:
equity level that must be maintained in brokerage customers' margin accounts, as required by the New York Stock Exchange (NYSE), the National Association of Securities Dealers (NASD), and individual brokerage firms. Under Regulation T, $2000 in cash or securities must be deposited with a broker before any credit can be extended; then an initial margin requirement must be met, currently 50% of the market value of eligible securities long or short in customers' accounts. The NYSE and NASD, going a step further, both require that a margin be maintained equal to 25% of the market value of securities in margin accounts. Brokerage firm requirements are typically a more conservative 30%. When the market value of margined securities falls below these minimums a margin call goes out requesting additional equity. If the customer fails to comply, the broker may sell the margined stock and close the customer out.
Referring Terms:
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