What does undermargined indicate about a margin account?

What does undermargined indicate about a margin account?

• A. The account is performing exceptionally well
• B. The account has a margin deficiency or insufficient funds
• C. The account holds more cash than securities
• D. The account has been flagged for security issues

Answer: (B)

Undermargined specifically indicates that a margin account has a deficiency, meaning that the account does not meet the minimum equity requirements set by the brokerage or regulatory standards. This situation occurs when the value of the securities held in the account declines, and the account equity falls below the required minimum level. In such cases, the investor may be required to deposit additional funds or sell securities to bring the equity back up to the required margin level.

The other options do not accurately reflect the meaning of undermargined. A scenario where an account is performing exceptionally well would typically be indicated by a strong market value of securities, not a margin deficiency. Holding more cash than securities would suggest a different type of account strategy, likely not associated with being undermargined. Lastly, being flagged for security issues refers to concerns regarding compliance or security of assets, which is not directly related to the margin deficiency situation defined by being undermargined.