184 THE WORK OF THE STOCK EXCHANGE
demand that his customer put up more margin whenever the
market value of the latter’s stock declines, so that there will
constantly be a reasonable surplus when the purchase price of
the stock is subtracted from its market value plus the cus-
tomer’s margin. Since the purchase price of the stock is fixed
at $15,000, it is obvious that the less the stock is worth on the
market, the more margin the customer must put up to maintain
this surplus.’
There is no uniform rule regarding the exact percentage of
margin initially required, or the extent to which a broker will
carry his margin customer in a declining market before calling
upon him for additional margin. The credit of individuals
varies so widely that brokerage houses, just as banks, must
decide each case involving an extension of credit on its own
separate merits. It is, however, a well-recognized fact that it
is to the advantage of both broker and customer to establish
and maintain adequate margins, and that the most successful
brokerage houses are apt to be those which are most conser-
vative about margin requirements. The Constitution of the
Stock Exchange (Rules, Chapter XII, Sec. 1) states: “The
acceptance and carrying of an account for a customer, whether
a member or a non-member, without proper and adequate
margin, may constitute an act detrimental to the interest or
welfare of the Exchange.” .
“Margin Calls” and Profit-Taking.—But to return to our
example: If the price of Steel declines to 125, the broker may
demand that Jones put up an additional $2,500 of margin,
since the 25-point decline has reduced the surplus of the value
of the stock plus the margin over the purchase price to only
$2,500. In case the stock continues to decline, and Jones, after
being notified by the broker, refuses to put up the amount of
margin thus requested, the broker may then sell his 100 shares
of Steel at—say—i110. Out of the $11,000 resulting from
the sale he will then pay off the $10,000 loan and return $1,000
"5 See Chapter XV. pn. 430.
