margin and Credit balance

viktor_k67

Junior member
41 2
According to the margin and credit balance data obtain from NYSEData.com Factbook

margin_creditbalance_chart.png

Chart courtesy of www.marketvolume.com

We may see that starting from the beginning of 2013 we have increase in margin and decrease in the credit balance. As of the last published data (as of March of 2015), credit balance now is 29% of the margin.

According to the margin rule 431 - "The margin which must be maintained in all accounts of customers... 25% of the current market value of all "long" securities ..."

If market has a correction, let's say 9%, it will go as a loss and it will lower the credit balance, and if it the credit balance drops below 25% it will create margin calls (selling to close partially long positions) which may push the market lower which may start a chain reaction of the massive margin calls and selling? I would appreciate if somebody may explain whether I understand these data correctly.
 

hhiusa

Senior member
2,687 139
According to the margin and credit balance data obtain from NYSEData.com Factbook

Chart courtesy of www.marketvolume.com

We may see that starting from the beginning of 2013 we have increase in margin and decrease in the credit balance. As of the last published data (as of March of 2015), credit balance now is 29% of the margin.

According to the margin rule 431 - "The margin which must be maintained in all accounts of customers... 25% of the current market value of all "long" securities ..."

If market has a correction, let's say 9%, it will go as a loss and it will lower the credit balance, and if it the credit balance drops below 25% it will create margin calls (selling to close partially long positions) which may push the market lower which may start a chain reaction of the massive margin calls and selling? I would appreciate if somebody may explain whether I understand these data correctly.

There is a laundry list of exceptions and caviats this rule. It is not as cut and dried as that statement makes it seem. There are more exceptions and specific conditions to this rule than I have listed.

http://www1.nyse.com/nysenotices/nyse/rule-interpretations/pdf?number=191

1. Regulation T of the Board of Governors of Federal Reserve System also known as Reg T accounts are exempt from Rule 431 per section (a)(2) of Rule 431.

2. CATS (Certificates of Accrual on Treasury Securities) and TIGRs (Treasury Income Growth Receipts) are exempted securities per section (a)(5) of Rule 431.

Additionally, and more to the point about the rule you quoted. "The margin which must be maintained in all accounts of customers, except for cash accuounts subject to Regulation T unless a transaction in a cash account is subject to other provisions of this rule, shall be as follows:

(1) 25% of the current market value of all securities except for securities futures contracts "long" in the account...​
See sections (c)(1), (c)(2), (c)(3) and (c)(4).
 
 
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