Qwoter Investment Advice
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Special Memorandum Account

(SMA) - A holding place for available cash, a double bookkeeping entry.

It increases when:

A client’s portfolio goes to a new “all-time” high. Essentially SMA will be HALF of the profit on the best day the account ever had. For example if a client buys $50,000 worth of stock that eventually rises to $75,000 before declining back to $60,000 the amount of SMA in the account is $12,500. This is simply the cash that was available when the $75,000 value occurred, and once SMA is established by a gain like this it is NEVER reduced by future market action.

SMA is also increased by 50% of the proceeds of ALL sales that occur in the account. This is tied to a rule that says that if a client sells a stock the client MUST be allowed to withdraw 50% of the proceeds. If they choose not to take that withdrawal (mostly because they don’t need the money) it will be added to their SMA account. For example, if a client sells $3,000 worth of stock three things will happen: 1) The market value will drop by $3,000 because the stock is no longer in the portfolio 2) the debit balance will be reduced by $3,000 because that part of the loan has been paid off. AND 3) (in the double bookkeeping mentioned above) the SMA balance will beincreased by $1,500.

SMA also increases if the client adds to the account by depositing cash or additional paid-for securities. This is because Market Value increases and/or the Debit balance decreases without actually making a trade.

Related Terms:

Margin Account
An account in which stocks can be purchased for a combination of cash and a loan. ...

Margin Requirements
The amount of cash or marginable securities (for example, blue chip stocks) that an account holder ...

Cash Dividends
A cash dividend is a dividend paid in cash. To be able to pay cash dividends, ...

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