A customer buys stock in a margin account, but does not pay in the 4 business days required under Regulation T. The brokerage firm can take all of the following actions EXCEPT:

C

Explanation:

Full question

A customer buys stock in a margin account, but does not pay in the 4 business days required under Regulation T. The brokerage firm can take all of the following actions EXCEPT:

A. sell out the position and freeze the account for 90 days

B. request an extension from FINRA

C. sell short the position

D. use existing SMA (credit line) in the margin account to meet the requirement

sell short the position

If a customer does not meet a Regulation. T. call, the firm is allowed to sell out the unpaid position, the firm can request an extension from FINRA. If there is existing SMA (SMA is the available credit line) in the account, it can be applied towards the call. The firm cannot create a short position (a new position) to cover the long position for which the customer did not pay

C. sell short the position

Explanation: A. sell out the position and freeze the account for 90 days

B. request an extension from FINRA

C. sell short the position

D. use existing SMA (credit line) in the margin account to meet the requirement

Buying of securities with borrowed money (from brokerages) is referred to as buying on margin. In instances where this is done without repayment in 4 days as required by Regulation T (provide rules for extensions of credit by brokers and dealers and also to regulate cash accounts), the brokerage firm is not allowed to short sell the position but is however, allowed to use existing special memorandum account (credit line) in the margin account to meet the requirement; request an extension from the self regulatory organisation; and finally to sell out the unpaid position and freeze the account for a period of 90 days.

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