For a person who trades on margin, does failure to meet a margin call count as a derogatory credit event (e.g. as a repossession, since, in a sense, it is?), or is it more similar to a pawnshop loan in the sense that failing to redeem your item is not considered to be a derogatory financial event (i.e. if you hock your guitar and are unable or unwilling to redeem it, the pawnshop just keeps it and you’ve lost no standing either at that shop or anywhere else), and does it ever show up on one’s credit report?
E.g.
J. Random Citizen - Credit Report
MegaBank - Credit Card
2005 - Present
Paid late once
Super Investment House - Margin Account
2008 - Present
Failed to meet margin call twice
Umm, but trading on margin does involve a loan. A margin call happens when the value of your stocks plus whatever cash is in your account falls below a certain percentage of your balance, or something similar. If you don’t fix it right away, the brokerage may start liquidating your holdings. My question relates to whether or not the brokerage just happily liquidates the person’s holdings without getting upset, or whether the fact that they didn’t meet the margin call means that they are financially irresponsible, naughty, or risky.
You are expected to meet your margin calls. Failure to do so is a default, and the liquidation of stock is an exercise by the broker of a security interest which it has to secure your performance of your primary obligation, which is to repay the loan when demanded.
As to how serious a default it is, that will depend on the amount involved and also on custom and practice in the market concerned.
Your broker definitely will check your credit report before opening your margin account, and that will show up on future reports. It’s up to the broker whether to report a default, and they are bound by the Fair Credit Reporting Act and other laws, as well as their privacy policies, which you should have read before signing.