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Excess Margin Securities 

 

The term "excess margin securities" refers to securities held in a client's margin account that have not been completely paid for or are being pledged by the customer as collateral to support the purchase of other securities on margin and whose market value exceeds 140% of the customer's margin balance.

Example:

A customer whose account equity consists solely of a cash balance of USD 10,000 on Day 1 purchases 400 shares of stock ABC at USD 50 per share on Day 2.

 

Account Balance Day 1 Day 2
Cash $10,000 ($10,000)
Stock $0 $20,000
Total $10,000 $10,000

 

 

On Day 2, the customer's excess margin securities total USD 6,000. This is calculated by subtracting 140% of the margin debit or loan balance from the market value of the stock position ($6,000 = $20,000 - {1.4 * $10,000}).

The term is relevant from a regulatory perspective as the SEC requires that U.S. broker dealers segregate and maintain in a good control location (e.g., DTC or bank) all customer securities which  are deemed excess margin securities.  Such securities cannot be pledged or loaned to finance  the activities of the firm or other customers.  The portion of the securities classified as margin securities ($20,000 - $6,000 or $14,000 in this example) are subject to a lien and may be pledged or loaned by the broker to assist in financing the loan made to the customer.

Note that securities which were excess margin at the date of acquisition may later be reclassified as margin or fully paid securities based upon the customer's subsequent trade and/or borrowing activity. For example, if the loan value of excess margin securities is subsequently used to acquire additional securities on credit, a portion of securities will then be reclassified as margin securities and subject to a lien. If the customer subsequently deposits cash or sells securities in an amount necessary to repay the margin loan, the securities will be reclassified as fully paid and are required to be segregated.

See also "fully paid securities".

 
 
 
 
 
 
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