Final answer:
The statement that SMA cannot be used to meet minimum maintenance requirements is false. An SMA, or Special Memorandum Account, can be used in margin trading to meet maintenance margins and prevent margin calls, although it doesn't increase account equity.
Step-by-step explanation:
The statement “SMA cannot be used to meet minimum maintenance requirements” is false. SMA stands for Special Memorandum Account, and it is a line of credit that a client can use for additional securities purchases without having to deposit more cash. A broker can use SMA to meet maintenance margin requirements; however, it is crucial to understand that while SMA can provide additional purchasing power, it does not increase the equity in the account.
Investors need to be aware of the regulations regarding margin trading set forth by the Financial Industry Regulatory Authority (FINRA) to ensure that they comply with all minimum requirements. In the context of margin trading, meeting maintenance requirements is essential to prevent a margin call, which occurs when the equity in a margin account falls below the broker's required minimum.