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 ?
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.
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.
It notes, for example, that initial margin requirements can become up to three times larger during stressful periods, so that a $100 million requirement becomes a $300 million.
Initial margin requirements prior to October 15, 1934, were set by the industry.
This new research examines the detailed costs of imposing new initial margin requirements on all OTC interest-rate derivatives, whether cleared or not.
Kruse will be responsible for helping the industry prepare for the variation margin Big Bang on March 1, 2017, and the extension of initial margin requirements to phase-two entities in September 2017.
Still, the survey responses indicate that initial margin requirements and credit limits became less favourable and valuation disputes increased, partly due to new requirements to exchange initial margin as of 1 September 2016.
PAA's margin balance including initial margin requirements totaled less than $70 million at June 30, 2008 and July 16, 2008.
As promised at the inception of the ISDA SIMM, this will all be done through a transparent governance framework, comprising an ISDA SIMM Governance Forum, which is open to all ISDA members that are subject to the initial margin requirements, and an ISDA SIMM Governance Executive Committee, which takes the decisions over alterations.
Using a single methodology that will be applied globally will reduce problems created by each firm calculating initial margin requirements using its own model and decrease the potential for disputes, said Scott OMalia, ISDAs Chief Executive.
The ISDA SIMM is a common methodology for the calculation of initial margin requirements for non-cleared derivatives.

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