When are cash dividends credited to SMA in a long margin account?

When are cash dividends credited to SMA in a long margin account?

• A. Immediately upon declaration
• B. When the dividends are paid
• C. After they are borrowed
• D. Within 30 days

Answer: (B)

In a long margin account, cash dividends are credited to the Special Memorandum Account (SMA) when the dividends are actually paid. This is in accordance with regulations governing margin accounts, which state that only realized gains and cash that has been received can be credited to the SMA. When a dividend is declared, it is merely an announcement that the company will pay a specific amount to shareholders; the payment does not occur until a specified payment date, which can be weeks or even months later. Thus, until the funds are physically transferred to the account, they do not count as available cash or credit for the purpose of adjusting SMA. By waiting for the payment to be made, the margin account accurately reflects the funds that the investor can actually use or withdraw, subsequently affecting any applicable margin requirements. This concept helps ensure that the SMA balance truly reflects only those funds that are available to the investor, thereby supporting responsible management of margin accounts.

In a long margin account, cash dividends are credited to the Special Memorandum Account (SMA) when the dividends are actually paid. This is in accordance with regulations governing margin accounts, which state that only realized gains and cash that has been received can be credited to the SMA.

When a dividend is declared, it is merely an announcement that the company will pay a specific amount to shareholders; the payment does not occur until a specified payment date, which can be weeks or even months later. Thus, until the funds are physically transferred to the account, they do not count as available cash or credit for the purpose of adjusting SMA. By waiting for the payment to be made, the margin account accurately reflects the funds that the investor can actually use or withdraw, subsequently affecting any applicable margin requirements.

This concept helps ensure that the SMA balance truly reflects only those funds that are available to the investor, thereby supporting responsible management of margin accounts.