Series 7: 15.3.2. Short Selling Rules

15.3.2. Short Selling Rules

Like purchases on margin, short sales are protected in a margin account. For purchases, the initial margin requirement is 50% of the current market value of the security, and the customer is extended credit for the balance of the purchase. For short sales, the initial margin is also 50%, but the borrower, rather than being credited for the balance, must fully collateralize the borrowed securities. The initial margin requirement, then, is 150% of the short market value (SMV) of the security.

The relevant equation is:

credit balance – SMV = equity

Since the customer has the proceeds of the short sale in the account and