initial margin requirement


Also found in: Acronyms.

Initial margin requirement

When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.

Initial Margin

The money or securities an investor keeps in a margin account in order to be able to borrow from a brokerage for short sales or other purposes. The initial margin requirement is kept as collateral until the brokerage calls the margin and the client pays back what is owed. FINRA requires that the initial margin requirement kept must be at least 25% of the amount borrowed, while some brokerages have initial margin requirements of up to 50%.

initial margin requirement

The minimum portion of a new security purchase that an investor must pay for in cash. For example, with an initial margin requirement of 60%, the most an investor can borrow is $2,000 on a $5,000 purchase. This requirement is determined by the Federal Reserve Board. Also called margin requirement.
References in periodicals archive ?
With a view to incentivise state governments to get SDLs a public rating, the central bank set an initial margin requirement for rated SDLs at one percent lower than that of other SDLs for the same maturity buckets.
Initial margin requirements in the stock market control the minimum margins that securities brokers and dealers must require of customers buying stocks on credit.
Table 5 reports sample firms' securities holdings that could, in principle, be used to meet initial margin requirements. In practice, two reasons that these total amounts of securities may not be able to be used for margin are that they are already pledged for some other purpose or that the CCP imposes a limit on how much may be used.
The framework also exempts from initial margin requirements the fixed, physically settled FX transactions that are associated with the exchange of principal of cross-currency swaps.
regulations, presenting global companies with two sets of initial margin requirements.
Initial margin requirements are set by the Federal Reserve, maintenance margin requirement is determined by individual brokerage firms.
"The buy-side mainly uses one-directional trading so we will not get the benefits of netting trades, and consequently cannot offset the initial margin requirements as the banks can by having multi-directional trades," she said.
While an extension of time to meet initial margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.
To be sure, experience with the effects of changes in securities margin requirements is both limited and dated (initial margin requirements on equities have changed only about twenty times since 1934 and have not changed at all since 1974).
Clearinghouses have imposed high initial margin requirements, as well as price and position size limitations, suggesting a cautious approach thus far to trading cryptocurrency derivatives.
The framework for calculating initial margin requirements has been imported from existing practices for cleared derivatives, except that regulators have increased the margin period of risk, presumably because there is a perception that non-cleared derivatives are intrinsically harder to close out or unwind if one counterparty defaults.
Initial margin requirements prior to October 15, 1934, were set by the industry.

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