Special memorandum account (SMA)

A special memorandum account (SMA) is a bookkeeping line of credit attached to a margin account. It tracks the account's excess equity — equity above the Regulation T requirement of 50% — and preserves it so the customer can use it later to buy more securities or withdraw cash.

SMA is created when the securities in a margin account appreciate. Suppose a customer buys $20,000 of stock, depositing $10,000 under Reg T. If the stock rises to $30,000, equity grows to $20,000 while the Reg T requirement on the current market value is $15,000 — leaving $5,000 of excess equity, which is credited to SMA.

The key feature of SMA is that it moves like a high-water mark: it increases when the account generates excess equity, but it does not decrease when the market value later falls. Once credited, SMA remains available unless the customer uses it. Because Reg T is 50%, each dollar of SMA supports two dollars of additional stock purchases — buying power equals SMA times two.

The one restriction is that using SMA cannot pull the account below the minimum maintenance requirement. In a restricted account, SMA can still be used, but withdrawals and purchases are governed by the buying power it provides.

SMA is a core margin topic on the Series 7 exam and also appears in the Series 9 margin rules. Be ready to calculate SMA after a market move, convert SMA into buying power, and recognize that a market decline does not erase previously credited SMA.