could you explain the distinction between a Reg T Margin Call and a Maintenance Call?
Regulation T governs initial margin on purchases and short sales and is a rule of the Federal Reserve Board.
For example, Reg T requires that you pay for each purchase of marginable common stock with 50% cash or SMA.
Likewise, Reg T establishes rules for opening short positions.
Although the FRB does have the authority to regulate maintenance margin, they defer to the self-regulatory organizations to do so.
The NASD and NYSE have established 25% maintenance margin requirements on long stock positions, for example.
The FRB has deferred to the SRO's to set ALL requirements for options. And the SRO's have only slight distinctions between initial and maintenance requirements for options. For most purposes, they are the same.
For both initial and maintenance margin, the brokerage firms always have the right to impose higher requirements than Reg T, the NYSE, or the NASD require.
They can never impose lower requirements.
For example, virtually every firm requires 30-35% maintenance requirements on long stock.
For naked options, the calculation is complex and we'll get to the calculation a bit later, but NASD/NYSE impose a "20%" requirement. Many firms use this as their options requirement, but some impose higher requirements.
For margin traders, you can negotiate the interest rate the firm charges you; however, under the regulations, you cannot negotiate (except under unusual situations; for example, control and restricted stock) the margin requirements imposed by the firm. |
