Question

If a customer buys shares of ABC, covering the short ABC position, what will occur to Credit, Market Value, and SMA?

Answer 1

When a customer buys shares to cover a short position, it can improve their credit and decrease market value and SMA.

Step-by-step explanation:

When a customer buys shares of ABC to cover a short position, a few things will occur:

1. Credit: The customer will no longer owe the shares they borrowed, so their credit will improve.
2. Market Value: The customer's market value will decrease because they are selling the shares they bought.
3. SMA (Special Memorandum Account): The SMA will decrease because the customer is using their funds to cover the short position.

Overall, buying shares to cover a short position can have a positive impact on credit and may decrease market value and SMA.