General Securities Sales Supervisor (Series10) Practice Exam

Which of the following would change the SMA balance in a long margin account?

1. Cash dividends received

2. Stock dividends received

3. Interest charged on the debit balance

4. Decline in the value of the securities

The correct answer is: Cash dividends received

The SMA, or Special Memorandum Account, in a long margin account is primarily affected by cash and securities transactions that impact a customer's equity balance. When cash dividends are received, they directly increase the equity in the account, which subsequently raises the SMA balance. This is because cash dividends represent a return on investment, enhancing the overall value of the account. Receiving stock dividends does not change the SMA balance as it merely adjusts the number of shares owned without impacting the overall equity directly, since it does not introduce cash into the account. Interest charged on the debit balance will decrease the account's equity, thereby reducing the SMA balance rather than increasing it. A decline in the value of the securities held in the margin account also negatively impacts the equity and therefore the SMA, as it diminishes the overall assets relative to the liabilities. Thus, the receipt of cash dividends is the key action that would positively affect the SMA balance by increasing the available equity within the margin account.