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A Special Memorandum Account is a memo account maintained alongside a margin account that tracks excess equity generated when the market value of securities in the account rises above the initial margin requirement. When the market value of your long positions increases, the equity in your account grows beyond what Regulation T requires you to maintain. That excess is automatically credited to your Special Memorandum Account, where it functions as a line of credit you can use to buy additional securities without depositing new cash.
Think of a Special Memorandum Account like a savings credit line that fills up automatically when your investments appreciate, then lets you borrow against it.
When you open a margin account and make purchases, Regulation T requires you to put up at least 50% of the purchase price as initial margin. If the securities appreciate after purchase, your account equity rises above the 50% requirement. That surplus is credited to your Special Memorandum Account.
For example, if you buy $10,000 in stock on margin with $5,000 of your own cash and the stock rises to $12,000, your equity is now $7,000 (the $12,000 value minus the $5,000 margin loan). The original Regulation T requirement was $5,000. The $2,000 above that requirement flows into your Special Memorandum Account.
The Special Memorandum Account provides buying power at a 2-to-1 ratio. Each $1 in the Special Memorandum Account balance allows you to purchase up to $2 of additional securities on margin. This is because Regulation T requires 50% initial margin, so a $1 credit supports $2 in purchases. The Special Memorandum Account is governed by 12 CFR 220.5.
The Special Memorandum Account has an important and sometimes counterintuitive property: it does not decrease if the market value of your securities declines after the credit was established. Once excess equity is credited to the Special Memorandum Account, that balance remains even if the market drops. This is sometimes described as the Special Memorandum Account acting as a high-water mark. The balance can only go down if you use it to buy more securities or withdraw funds from the account.
However, if your equity falls below the Regulation T requirement due to market declines, you may receive a margin call to restore the required equity level, and your Special Memorandum Account balance would be zeroed out as a result of the margin call process.
The Special Memorandum Account balance is a separate tracking mechanism from your actual account equity. Equity is the real-time value of your holdings minus the margin loan balance. The Special Memorandum Account is a credit memo reflecting historically earned buying power. You can have a large Special Memorandum Account balance and still fall below maintenance margin requirements if the market drops sharply.
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With deep roots in traditional finance and the digital asset industry, Acquire.Fi operates as a specialist M&A advisory firm. Coverage spans M&A, secondaries, OTC, and capital markets advisory across digital assets and frontier tech. Decades of combined experience across every stage of the deal lifecycle.
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