Five hundred dollar rule

(redirected from 500 Dollar Rule)

Five hundred dollar rule

A rule of the Federal Reserve that excludes deficiencies of $500 or less in margin requirements as a necessary reason for the firm to liquidate the client's account to cover a margin call.

Five Hundred Dollar Rule

An SEC rule prohibiting broker-dealers from liquidating a client's investment to cover a margin call if the deficiency in the margin account is less than $500. In a margin account, one borrows from a broker-dealer to buy securities. One must offer other securities as collateral, such that the value of the securities is a certain percentage of the value of the amount one borrows. If the value of those securities drops below that percentage, the broker-dealer may require the client to offer more securities or, failing that, may liquidate the client's positions to cover the deficiency. The five hundred dollar rule prevents the broker-dealer from treating the client unfairly by liquidating positions to cover minor deficiencies.