What is a Maintenance Call [Securities]? A Comprehensive Guide
Definition & Meaning
A maintenance call, in the context of securities, is a request from a broker to a client to provide additional funds or collateral, such as stocks, when the value of the client's securities falls below a certain level. This situation typically arises when the market prices of the securities decline, prompting the broker to ensure that sufficient collateral is maintained to cover the financed purchase. A maintenance call is also commonly referred to as a margin call.
Legal Use & context
Maintenance calls are primarily used in the financial and securities sectors. They are relevant in transactions involving margin accounts, where clients borrow funds from brokers to purchase securities. When the value of these securities decreases, brokers may issue a maintenance call to protect their interests. This concept is important for individuals and businesses involved in investment activities, as it can impact their financial obligations and investment strategies.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A client has a margin account with a broker and has purchased $10,000 worth of stocks using borrowed funds. If the value of those stocks drops to $7,000, the broker may issue a maintenance call requiring the client to deposit additional funds or securities to maintain the required collateral level.
Example 2: A trader holds a portfolio of securities worth $50,000 but has borrowed $30,000 against it. If the market value of the portfolio falls to $40,000, the broker may issue a maintenance call to ensure that the loan is adequately secured. (hypothetical example)