Special Memorandum Account (SMA)
Chapters in this video
- 0:00 SMA as a ghost credit card, not cash
- 1:37 How Carla builds her SMA balance
- 2:55 The cash deposit trap with Riley the Rep
- 3:30 Three ways SMA gets used up
- 4:01 SMA survives the market crash scenario
- 5:30 Buying power equals 2 x SMA multiplier
- 6:30 Short accounts and selling power
- 7:04 Sam the supervisor's maintenance floor
- 8:28 Rapid-fire exam recap
What this video covers
- Why the Special Memorandum Account (SMA) is a bookkeeping line of credit, not cash, and how exam writers disguise this distinction
- How SMA is created through excess equity, sale proceeds, cash dividends, interest, and deposits of marginable securities
- The critical trap that cash deposits only increase SMA when not needed to satisfy an existing Regulation T (Reg T) call
- All actions that reduce SMA: security purchases, cash withdrawals, and securities withdrawals, with the correct percentage reductions for each
- Why SMA acts as a high-water mark and is never reduced by market declines, even when the account becomes restricted
- The 2x multiplier relationship: buying power equals 2 x SMA in long accounts, and selling power equals 2 x SMA in short accounts
- When Sam the supervisor blocks SMA use: any withdrawal or purchase that would drop equity below the greater of $2,000 or the maintenance requirement (25% long, 30% short)
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