Let's say the investor wants to buy \$4,000 of RST stock. He must put in at least \$2,000 in cash:

 \$7,000 Long Market Value (\$4,000) Debit Balance \$3,000 Credit Balance (\$3,500) Reg T Requirement (\$500) Excess Equity

The long market value went up by the \$4,000 price of the stock acquired to \$7,000. The debit balance grew \$2,000 to \$4,000, as did the credit balance (increasing to \$3,000). This resulted in no change for excess equity: which remains negative, and the account is still under restriction. Reg T requirement changed in absolute terms, but it remains a consistent 50% of market value.

Your client would need to deposit \$500 in cash - add that to the credit balance - to bring the margin back to 50%. Another way to do the same thing would be to add \$1,000 in securities. So if he added \$1,000 worth of OPQ shares:

 \$8,000 Long Market Value (\$4,000) Debit Balance \$4,000 Credit Balance (\$4,000) Reg T Requirement - Excess Equity

Now let's say his shares decline by \$1,000. You will see that the debit balance does not change:

 \$7,000 Long Market Value (\$4,000) Debit Balance \$3,000 Credit Balance (\$3,500) Reg T Requirement (\$500) Excess Equity

Let's say the investor now sells \$2,000 worth of securities:

 \$5,000 Long Market Value (\$3,000) Debit Balance \$2,000 Credit Balance (\$2,500) Reg T Requirement (\$500) Excess Equity

You can see \$1,000 is deducted from the debit, but another \$1,000 is erased from equity. Where did that \$2,000 go?

They went straight into the investor's pocket in the form of a cash withdrawal.

Alternately, he could have left the money in the account, in which case both debit and equity would change by the full \$2,000:

 \$5,000 Long Market Value (\$2,000) Debit Balance \$3,000 Credit Balance (\$2,500) Reg T Requirement \$500 Excess Equity

This returns your client to excess equity and takes restrictions off the account. If he wants to buy another \$1,000 in securities, he need not make a cash deposit.

Special Memorandum Account

Related Articles
1. Investing

### What Does Debit Mean?

Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
2. Investing

### What's a Debit Note?

A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaserâ€™s account. ...

### Understanding Forex Rollover Credits And Debits

Forex trades are subject to receiving interest or being debited interest if positions are held overnight.
4. Personal Finance

### How Debit Cards Work

Unlike credit cards, debit cards rely only on the funds available in the userâ€™s account, so they do not let users borrow on credit. They frequently come with purchase limits, and using one at ...
5. Personal Finance

6. Tech

### Debit Card Fraud: Is Your Money At Risk?

As criminals are becoming more savvy, your money is becoming more vulnerable.
7. Investing

### What is a Contra Account?

A contra account is an offset that reduces the value of a related account.
8. Personal Finance

### How To Live Without A Credit Card

Debit cards are more widely accepted and provide better fraud protection than in the past.