Pass The 66: A Plain English Explanation To Help You Pass The Series 66 Exam - Updated for 2016 by Robert Walker

Author:Robert Walker [Walker, Robert]
Language: eng
Format: azw3
Published: 2015-02-20T16:00:00+00:00

Minimum Maintenance

Reg T tells us what to put down on an initial transaction, and any excess above Reg T gives the customer “SMA.” But, SMA and excess equity are, by definition, terms used when the market is cooperating with the margin customer. What happens when the market goes the wrong way? Suddenly, the customer’s equity is deficient, and he either has to throw more cash on the fire or start liquidating securities. See, Reg T requirements apply initially and then help us figure if the customer has any SMA to play with. The customer’s larger concern is the SRO 25% minimum maintenance requirement. The regulators say that a customer’s equity can never go lower than 25% of the long market value. If it does, the customer gets a maintenance call to bring the equity up to the minimum 25%. If the customer can’t deliver the cash, the firm sells/liquidates securities equal to four times the amount of the maintenance call. The following numbers should help to clarify the concept of the minimum maintenance requirement:

LMV

Dr

Equity

Minimum

Call

Liquidate

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