What is a special memorandum account?

A special memorandum account (SMA) is a line of credit that an investor in U.S. equities can use to buy more shares on margin. The credit is created when the market value of securities in the investor’s margin account increases in value. Its use is governed by Federal Reserve Board Regulation T.

Where have you heard about a special memorandum account?

As an investor in U.S. stocks, your broker should have made you aware of the broad Regulation T rules and regulations on margin accounts, and specifically the use of a special memorandum account. The account enables to you to unlock the value of unrealised gains to make further investments.

What you need to know about a special memorandum account.

One of the most crucial considerations of managing a portfolio of stocks is understanding the rules, regulations, and risks of buying securities on margin, which is effectively a loan from your broker against the collateral provided by your existing holdings. The special memorandum account reflects the balance of excess margin generated in your account. The SMA multiplied by 2 generally represents the buying power balance of a margin account. Although the SMA does not decrease when the market value of margin eligible securities decreases, you may be required to deposit additional funds in your margin account if the market falls.