Series 7 practice questionmediumMargin Accounts — SMA
SMA (Special Memorandum Account) in a long margin account increases when:
- AThe market value of securities declines
- BThe market value of securities increases above the Reg T requirement✓ Correct answer
- CThe client receives a margin call
- DThe debit balance increases
Explanation
Why B — The market value of securities increases above the Reg T requirement
SMA increases when the market value of securities in the account rises, creating excess equity above the Reg T 50% requirement. SMA also increases from cash deposits, dividends received, and interest credits. Importantly, SMA represents buying power — each $1 of SMA provides $2 of buying power (at 50% Reg T). SMA does not decrease when the market value declines (it has a ratchet effect).
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