What Is a Special Memorandum Account (SMA)?

A special memorandum account, or SMA, is the line on a margin statement that records how much credit Regulation T still allows the account to draw. It reads like a cash balance, and it works like a credit limit. Nothing is deposited in it, and drawing on it either raises the margin loan or buys securities with borrowed money.

What is a special memorandum account?

Regulation T is the Federal Reserve Board rule on brokerage credit, published at 12 CFR Part 220, and it defines the special memorandum account at 12 CFR 220.5. SMA is a memo entry the broker keeps beside the real cash and securities in a margin account. The balance answers one question: how much more can this account buy or withdraw before the federal rule stops it.

Two terms carry the arithmetic. Equity is the market value of the positions minus the debit balance, which is the loan owed to the broker. Margin excess is the equity above the Reg T requirement, and for long stock that requirement is 50% of market value, set in the supplement at 12 CFR 220.12.

Section 220.5(b) lists what may be credited to SMA:

• dividend and interest payments received
• cash deposited that the rule does not require the account to keep
• proceeds of a sale, or cash no longer required in the account
• margin excess transferred from the margin account, which is the entry a rise in position value creates

Debits run the other way. Cash withdrawn reduces SMA dollar for dollar, and a new purchase reduces it by the Reg T requirement on that purchase. Interest charged on the loan works against the balance as well.

Is SMA cash I can withdraw?

SMA is not withdrawable cash. The cash line on a statement answers what can leave the account today. SMA answers what the rule permits, and in an account that already carries a loan, every dollar of SMA used is a dollar added to that loan. Interest begins accruing on the larger balance the day it is drawn.

One dollar of SMA supports one dollar withdrawn. The same dollar supports two dollars of marginable stock at the 50% initial requirement, which is where the familiar shorthand comes from: buying power is twice the SMA balance. That factor of two is a feature of the 50% number, and it does not extend to positions the rule treats differently, including non-marginable securities, which carry no loan value at all and have to be paid for in full.

How SMA moves through four account events

Take a hypothetical account holding $40,000 of marginable stock against a $20,000 margin loan. Equity is $20,000, the Reg T requirement is $20,000, and margin excess is zero. SMA is $0 and buying power is $0. Now walk it through four events, in order.

1. A cash deposit of $5,000 pays the loan down to $15,000. Equity is $25,000 against a $20,000 requirement, and the deposit is cash the rule does not require the account to keep. SMA becomes $5,000. Buying power is $10,000.
2. The stock gains $8,000, lifting market value to $48,000. Equity is $33,000, the requirement rises to $24,000, and margin excess is $9,000. The credit to SMA is the increase in margin excess, $4,000, which is half the gain. SMA is $9,000 and buying power is $18,000.
3. The stock gives the $8,000 back. Market value returns to $40,000, equity to $25,000, and margin excess to $5,000. A decline in market value is not a debit item, so SMA holds at $9,000. Buying power still prints $18,000.
4. The account buys $12,000 more stock on margin. SMA falls by the requirement on that purchase, $6,000, leaving $3,000. The loan rises to $27,000, market value to $52,000, and equity stays at $25,000. Buying power is $6,000.

The panel below runs that same ledger, one row per event, with each SMA entry summed forward from the row above it.

WITH ledger AS (
    SELECT 1 AS step, 'Start' AS event, 40000 AS market_value, 20000 AS debit_balance, 0 AS sma_entry
    UNION ALL
    SELECT 2, 'Deposit 5k cash', 40000, 15000, 5000
    UNION ALL
    SELECT 3, 'Stock gains 8k', 48000, 15000, 4000
    UNION ALL
    SELECT 4, 'Stock gives 8k back', 40000, 15000, 0
    UNION ALL
    SELECT 5, 'Buy 12k on margin', 52000, 27000, -6000
)
SELECT
    event,
    market_value,
    debit_balance,
    market_value - debit_balance                        AS equity,
    0.50 * market_value                                 AS reg_t_requirement,
    market_value - debit_balance - 0.50 * market_value  AS margin_excess,
    SUM(sma_entry) OVER (ORDER BY step)                 AS sma,
    2 * SUM(sma_entry) OVER (ORDER BY step)             AS buying_power
FROM ledger
ORDER BY step

Two details are worth pausing on. After step 3, SMA of $9,000 sits above margin excess of $5,000, and the two numbers have stopped agreeing. After step 4, equity of $25,000 sits under the $26,000 that a fresh 50% purchase of the full $52,000 position would require, while the account remains well above the 25% maintenance floor at roughly 48% equity. The Reg T test is applied at the moment of the trade, not continuously afterward.

Why does a gain add only half and a loss subtract nothing?

The asymmetry falls straight out of the arithmetic. A long position that gains $1,000 raises equity by $1,000 and raises the 50% requirement by $500. The new margin excess is $500, and that is the amount credited. The other half of the gain is absorbed by the larger requirement on a now larger position.

A decline works differently. The entries that reduce SMA are withdrawals and new commitments, and market depreciation is not among them. The balance holds where it was.

SMA ratchets. It records the high credit mark an account has reached, adjusted for what has since been drawn, rather than the cushion the account holds right now. In a drawdown the gap between those two widens, and that gap is the single most common way the number is misread. A statement can show ample buying power in an account whose equity cushion has thinned considerably.

Reg T, house maintenance rules, and portfolio margin

Reg T is one layer among several, and the layers compute different numbers.

• Reg T governs the initial requirement at the point of purchase and the SMA ledger that tracks it.
• FINRA Rule 4210(c) sets the ongoing maintenance minimum, 25% of market value for long equity. That is an industry floor, and brokers set house requirements above it. Published house minimums of 30% to 40% on ordinary stocks are typical, with higher figures on concentrated or volatile positions. A house rule can also hold buying power below what SMA implies, and the broker figure is the one that governs what the account can actually do.
• Portfolio margin, permitted under FINRA Rule 4210(g), computes the requirement a completely different way: it stresses the whole portfolio across a range of moves in each underlying and charges the worst case loss. Accounts on that method carry no SMA line, and buying power comes from equity above the risk based requirement. The two frameworks are compared in Reg T margin vs portfolio margin.
• Day trading buying power is a further number again, computed from maintenance excess for accounts flagged under the pattern day trader rule, never from SMA.

Cash accounts sit outside all of this. No loan exists and no SMA is computed, and the binding constraint there is settled funds, which is the subject of good faith violations in cash accounts. Short option positions are their own calculation again, laid out in margin for selling naked options.

FAQ

Is SMA the same as cash in my account?

No. SMA is a credit line recorded as a memo entry, and no money sits in it. Withdrawing against SMA in an account that carries a margin loan increases the loan and the interest charged on it.

Does SMA go down when my stocks fall?

No. A decline in market value is not one of the entries that debit SMA under Regulation T. The balance stays where it was, which is why SMA can sit well above an account's current margin excess after a drawdown.

How is buying power calculated from SMA?

Under the 50% initial requirement at 12 CFR 220.12, buying power for marginable stock is twice the SMA balance. A $5,000 SMA balance supports $10,000 of stock bought on margin, or $5,000 withdrawn in cash.

Do portfolio margin accounts have an SMA?

No. Portfolio margin accounts size requirements from stress tests on the whole portfolio under FINRA Rule 4210(g) rather than from the Reg T percentages, and no SMA line is maintained.

Why does my broker show less buying power than my SMA suggests?

House requirements sit on top of the federal rule. A broker can set higher initial and maintenance percentages, restrict individual securities, or trim buying power on concentrated positions, and the broker's figure is the operative one.

The ledger above is arithmetic anyone can run against their own statement: track equity against the requirement after each event, and SMA stops being mysterious. For the account level questions that sit behind it, ask in plain English on the Strasmore terminal.