What Is a Special Memorandum Account (SMA)?

A special memorandum account (SMA) is a dedicated investment account where excess margin generated from a client's 澳洲幸运5官方开奖结果体彩网:margin account is deposited🦹, thereby increasing the buying power for the client. The SMA essentially represents 🙈a line of credit and may also be known as a "special miscellaneous account."

Special memorandum accounts should not be confused with 澳洲幸运5官方开奖结果体彩网:separately managed accounts, also abbreviated as "SMA."

Understanding a Special 🌌Memorandum Account (SMA)

An SMA generally equates to the buying power balance in a margin account. Buying power, or excess equity, is the money an investor has available to purchase securities and equals the total cash held in t🌃he brokerage account plus all available margin.

An SMA provides additional buying power in a client's margin account. It exists when the margin equity in an account exceeds the 澳洲幸运5官方开奖结果体彩网:Federal Reg T requirement of 50%. If the Reg T initial requirement is not met, a Fed call will be issued against the account.

Brokerage firms calculate the SMA balances of margin accounts at the end of each trading day to make sure they are greater than or equal to zero. SMA is calculated simply as the previous day's SMA +/- the change in current day cash, and +/- the current day trades' initial margin requirements.

An SMA will lock in any gains realized in a client's margin account. However, the SMA balance fluctuates.

Special Considerations

Consider the situation where stock within a client's margin account realizes a capital gain and creates excess margin. If this excess amount is held in the account, and the stock position produces a 澳洲幸运5官方开奖结果体彩网:capital loss a🌃t a later date, the client could then lose th𒁏eir gain entirely.

The SMA balance increases in value with cash deposits into t𓂃he brokerage account. The S𒈔MA also holds interest and dividend payments from long positions and proceeds from closing out a securities position.

Clients can use funds in their SMA to purchase additional securities for their margin account. The SMA balance decreases with cash withdrawals from the brokerage account and when buy or𒅌ders for securities are executed.

The Bottom Line

A special memorandum account (SMA) increases an investor's buying power by holding excess margin. The excess margin occurs when the equity in the account is above the Reg T requirement of 50%. This extra amount can also act as a buffer against future margin calls if the account's value drops.