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I've noticed that a lot of brokerage firms mention Special Memorandum Accounts (SMA) within the context of calculating margin requirements for margin accounts. Can anybody explain or perhaps direct me to resources for understanding how Special Memorandum Accounts work? Do they vary from brokerage to brokerage? I really do not know anything about them...

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    If one can make any sense of the Investopedia article investopedia.com/terms/s/specialmemorandumaccount.asp I'd be curious to understand what they meant here. – JoeTaxpayer Dec 26 '13 at 4:10
  • it sounds like a margin stop loss? – im so confused Dec 26 '13 at 16:16
  • wait no, it's unrealized gains you can use to count towards your margin but nothing else – im so confused Dec 26 '13 at 16:17
  • Another link to Investopedia suggests that it's used to keep track of what looks like margin excess (investopedia.com/exam-guide/series-7/customer-accounts/…). Are margin excess and the amount specified in a special memorandum account always the same? The link in this comment does not keep track of the SMA from the time the margin account was created... – Andrew Dec 26 '13 at 20:40
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Here is another explanation of an SMA.

SMA refers to the Special Memorandum Account which represents neither equity nor cash but rather a line of credit created when the market value of securities in a Reg. T margin account increase in value. For example, assume the market value of securities purchased at a cost of $10,000 on margin (at 50%) increase in value to $12,000. This $2,000 increase in market value would create SMA of $1,000, which provides the account holder the ability to either: 1) buy additional securities valued at $2,000 (assuming a 50% margin rate) without depositing up additional funds; or 2) withdraw $2,000 in cash, which may be financed by increasing the debit balance if the account holds no cash.

It should be noted that while an increase in market value over original cost creates SMA, a subsequent decline in market value has no effect on SMA. SMA will only decline if used to purchase securities or withdraw cash and the only restriction with respect to its use is that the additional purchases or withdrawals do not bring the account below the maintenance margin requirement. SMA will also increase on a dollar for dollar basis in the event of cash deposits or dividends.

More details at
http://ibkb.interactivebrokers.com/article/66

  • It is generally advisable to put some details in the answer and then link it up. Link only answers are generally discouraged. I have edited this post. Feel free to edit if you feel to put it differently – Dheer Mar 12 '14 at 3:31
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The Margin Account holds the funds that are MUST for any margin trades. Any funds excess of the MUST for margin trades are kept in the SMA account. These funds can be used for further Margin trades in new securities [funds get transfered into the Margin Account]. They cannot be used to met the Shortfall due to margin calls on existing trades. New funds need to be arranged.

More at

http://en.wikipedia.org/wiki/Special_memorandum_account

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