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Excess Equity (EE) is the value of a margin account’s equity in excess of the original Reg. T. requirement. To determine if an account has excess equity, you must look at the total market value of the account, and determine what the Reg. T. requirement would be at the current level. If the account has equity over that amount the account has excess equity.
When a customer opens a margin account he is required to meet the initial Reg T requirement for the trade. The formula for determining a customer’s equity in the account is:
Market Value-Debit Balance=Equity
Excess equity is created when the securities in the account increase in value to such a point that there is equity in the account in excess of 50% of the market value (Reg T).
50% of the current market value is 12,000. Equity is 14,000. Therefore, there is 2,000 in excess equity in the customer’s account (14,000-12,000=2,000). The excess equity is credited to SMA and the customer may use the SMA to purchase securities (or sell short securities) valued at two times the SMA with Reg. T. at 50 percent.
You will see a number of questions on your exam dealing with the operation of a margin account. Review this information closely in our textbook and take all of the practice questions relating to margin in our exam prep software. Be sure you are ready to pass your exam with our Greenlight money back pass guarantee.
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The Securities Institute of America, Inc.