Maintenance Margin Requirements

You now know how to calculate equity in both long and short accounts. The next critical question is: at what point does the broker-dealer issue a margin call? That's where maintenance margin comes in.

FINRA Minimum Maintenance

• These are FINRA minimums under Rule 4210; most broker-dealers set higher "house" requirements (commonly 30-35% for long, 35-40% for short)
• The exam tests FINRA minimums unless stated otherwise

Why is the short maintenance requirement higher? Short selling has theoretically unlimited risk (a stock can rise without limit), so FINRA requires a larger equity cushion (30%) compared to long positions (25%), where the most you can lose is the stock going to zero.

Maintenance Call Trigger Price - Long Account

The trigger price formula tells you exactly when a maintenance call will occur.

Starting from the equity formula at the trigger point (where DR = debit balance):

• Equity = 25% of LMV
• Since Equity = LMV - DR:
  • LMV - DR = 0.25 x LMV
  • 0.75 x LMV = DR
  • LMV at maintenance = DR / 0.75

Example: Debit balance of $5,000 triggers a maintenance call at:

• LMV = $5,000 / 0.75 = $6,667
• Per-share trigger price (100 shares): $6,667 / 100 = $66.67/share

If the stock falls to $66.67 or below, the broker-dealer issues a maintenance call.

Think of it this way: The debit balance is what you owe. Dividing by 0.75 tells you the minimum stock value needed so your equity stays at 25%. If the stock drops below that level, your equity cushion is too thin and the firm calls for more money.

Maintenance Call Trigger Price - Short Account

For short accounts, the trigger point formula works similarly (where CR = credit balance):

• Equity = 30% of SMV
• Since Equity = CR - SMV:
  • CR - SMV = 0.30 x SMV
  • CR = 1.30 x SMV
  • SMV at maintenance = CR / 1.30

Example: Credit balance of $7,500 triggers a maintenance call at:

• SMV = $7,500 / 1.30 = $5,769
• Per-share trigger price (100 shares): $5,769 / 100 = $57.69/share

If the stock rises to $57.69 or above, the broker-dealer issues a maintenance call.

Exam Tip: Gotchas

• The long trigger formula is DR / 0.75 and the short trigger formula is CR / 1.30. These are the two most frequently tested margin formulas on the Series 7.
• The denominators come from (1 - maintenance %) for long and (1 + maintenance %) for short. Long divides by 0.75 (1 - 0.25); short divides by 1.30 (1 + 0.30).

Meeting a Maintenance Call

When a maintenance call is issued:

• The customer must deposit cash or marginable securities to bring equity back to the maintenance level
• For a long account, the required deposit = (25% x LMV) - Current Equity
• If the customer fails to meet the call, the broker-dealer may liquidate securities in the account to restore compliance
• The broker-dealer is not required to give the customer time to meet the call; they may liquidate immediately (though most firms provide 2-5 business days)
• Under FINRA rules, a firm may not meet margin calls by liquidating another customer's account

Exam Tip: Gotchas

• The firm can liquidate without giving advance notice on a maintenance call.
• A firm cannot liquidate another customer's account to meet one customer's margin call.

Reg T Call vs. Maintenance Call

These are two different types of margin calls with different triggers and rules:

Key distinction: A Reg T call occurs from a new transaction in a restricted account. A maintenance call occurs from market movement pushing equity below the maintenance floor.

Exam Tip: Gotchas

• A restricted account does NOT trigger a maintenance call. An account with equity below 50% (Reg T level) is "restricted," but a maintenance call only occurs when equity falls below 25% (long) or 30% (short).
• Reg T calls have a firm deadline (T+2). Maintenance calls have no required waiting period; the firm can act immediately.