General Securities Sales Supervisor (Series10) Practice Exam

In an existing short margin account, what is the minimum margin requirement for selling short a stock priced at $1.50?

1. $750

2. $1,500

3. $2,000

4. $2,500

The correct answer is: $2,500

In the context of selling short in a margin account, regulations set forth by both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) determine the minimum margin requirements. For stocks priced below $5, the minimum margin requirement is typically 100% of the stock's current market value, or a minimum requirement of $2,000. When evaluating the minimum requirement for a stock priced at $1.50, it falls under the category of low-priced securities. In this case, the calculation for the minimum margin requirement is straightforward: one must embody 100% of the value of the shares sold short. If one were to short 1,000 shares of a stock priced at $1.50, that would result in a total market value of $1,500. However, because the total value is less than $2,000, the requirement defaults to the minimum set regulation of $2,000. Therefore, the minimum margin requirement when selling short a stock priced at $1.50 would indeed be $2,000, ensuring that the broker has sufficient collateral to cover potential losses incurred from the short sale.