Chapter 04 · Section 4.1

Default on Margin

A margin call is the broker's request for the customer to deposit more money in the margin account. Usually the additional margin money must be deposited within 24 hours (in some cases less). What happens if the customer does not deposit the additional money required?

• a) The broker may sue the customer in order to obtain the money. If the customer cannot pay, the broker has to bear the loss.
  No. The margin is good-faith money. If the customer's margin deposits are insufficient, this does not mean that he has a debt towards the broker. The broker has another solution.
  b) The broker may liquidate the customer's option positions. If a net loss remains, he uses the margin money to cover the loss.
  c) The broker turns to the Clearing House, which acts as a guarantor for all open positions.

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