Margin
Back to MarginA margin call is a demand that an investor using margin deposit additional money or stock so the margin account is brought up to the minimum maintenance requirement. There are two main types of margin calls at Scottrade: Maintenance Calls and Fed Calls.
Maintenance Call
What You'll See: "The equity in your account has fallen below the minimum maintenance requirement. An immediate deposit of funds and/or the deposit of marginable securities are needed to satisfy this call."
What it Means: This is a reminder that per NYSE Rule 431 and FINRA Rule 2520, Scottrade will be required to liquidate positions if equity requirements are not met. The NYSE minimum equity requirement is 25%, and any accounts dropping below that level require immediate action, meaning Scottrade could be required to liquidate part of your account in less than 24 hours to meet the call unless you take immediate action. Any positions liquidated will be at the discretion of Scottrade. Generally, drops in equity percentage are the result of market depreciation of held assets or opening transactions made in the account. Keep in mind, Scottrade's margin requirements are higher than the percentage set by NYSE, so it's important to be aware of your equity percentage at all times.
Potential Consequences: If the call is for more than $100, you will receive a letter from Scottrade alerting you to the call and to meet the call immediately. To meet the call is to raise your equity percentage back up to an acceptable level. You will have two business days to meet the call. If you do not meet the call in that time, Scottrade has the right to sell off stock from your account to the extent that the call will be covered.
What You Can Do: There are three ways you can meet a maintenance call:
1. Sell stock - To determine how much stock to sell in order to meet the call, you need to take into account the value and the maintenance requirement of the stock you're selling. The amount of proceeds that go to meet the call is calculated as the value of stock sold multiplied by the maintenance requirement. For example, to meet a maintenance call of $600, you could sell 400 shares of stock valued at $6 per share ($2,400 of stock x 25% NYSE maintenance requirement = $600).
2. Deposit stock - To meet a maintenance call with deposited stock, the stock you deposit must be fully paid for. To determine how much stock to deposit, take the amount of the call and divide it by the loan value of the stock (loan value = 100% - maintenance requirement % of that stock). For example, to meet the same $600 call noted above at the 25% NYSE maintenance requirement, you could deposit 100 shares of stock valued at $8 per share ($600 / loan value = $600 / 75% = $800).
3. Deposit funds - You must deposit the exact amount required by the call. Wired funds are accepted anytime before the deadline for meeting the call, but cashier's checks and money orders are only accepted a minimum of 24 hours before the deadline.
Please click here for instructions on wiring funds into your account. Your bank may not provide notice or complete the transfer of funds prior to Scottrade selling your positions. It is therefore your responsibility to notify the branch with the federal wire reference number.
Please be aware that per the margin agreement, Scottrade reserves the right to institute immediate discretionary liquidation without prior notice and without giving you the opportunity to deposit additional equity in order to satisfy your equity requirements. You will be responsible for any resulting debit balance left in your account.
If you have any questions, please contact your local branch office.
Fed Call
What You'll See: "An initial call has been generated for the order(s) recently executed in your account. In order to satisfy Federal Reserve Regulations, it is necessary for you to immediately deposit additional funds into your account."
What it Means: This is an initial request for additional funds after you make a purchase. The federal requirement for purchasing stock is 50% equity. A fed call is generated when a new purchase or short sale is made on margin and your account equity drops below the short maintenance requirement. Unlike maintenance calls, fed calls can only be the result of an opening transaction.
Potential Consequences: Fed calls must be met immediately. If the call is not met, Scottrade has the right to sell off stock from your account to the extent that the call will be covered.
Unlike a maintenance call, a fed call should not be met by selling stock. This can result in a liquidation violation, whether you sell the stock or Scottrade sells your securities to meet the call. Liquidation violations result in graduated penalties:
1st Violation - Your account is marked Restriction 1 (warning) for 90 days. Trading activity is not affected. However, if your account was below the NYSE minimum of 25% equity at the time, this will be treated as a second violation.
2nd Violation - Your account is marked Restriction 3 (day trading buying power is removed) for 90 days.
3rd Violation - Your account is marked Restriction 3 (day trading buying power is removed) for one year.
4th Violation - Margin is removed permanently from your account.
What You Can Do: A fed call must be met by cash or by depositing marginable stocks.
1. Deposit funds - You must deposit the exact amount required by the call. Wired funds are accepted anytime before the deadline for meeting the call, but cashier's checks and money orders are only accepted a minimum of 24 hours before the deadline. Deposited funds must remain in the account for a minimum of 24 hours to prevent a liquidation violation.
2. Deposit marginable stock - You must deposit two times the amount of stock that is required to meet the fed call. To determine how much stock to deposit, take the amount of the call and divide it by the loan value of the stock (loan value = 100% - maintenance requirement % of that stock). For example, to meet a $500 fed call, you could deposit 200 shares of stock valued at $5 per share ($500 / loan value = $500 / 50% = $1,000). The deposited stock must remain in your account for a minimum of 24 hours to prevent a liquidation violation.
If you have any questions, please contact your local branch office.
Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. Scottrade's margin agreement, available at scottrade.com or through a Scottrade branch office, contains the Margin Disclosure Statement and information on our lending policies, interest charges and the risks associated with margin accounts.
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Margin trading involves interest charges and risks, including the potential to lose more than deposited, or the need to deposit additional collateral in a falling market. Margin Disclosure Statement (PDF) is available for download, or it is available at one of our branch offices. It contains information on our lending policies, interest charges, and the risks associated with margin accounts.
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