Regulation T
Regulation T is a Federal Reserve Board rule that governs the extension of credit by broker-dealers to customers for the purpose of purchasing securities, establishing the initial margin requirement — currently 50 percent — that investors must deposit when buying securities on margin.
Enacted under the Securities Exchange Act of 1934, Regulation T (commonly called Reg T) is one of the foundational rules governing margin accounts in the United States. Its central provision establishes that when a customer purchases securities in a margin account, the broker-dealer may extend credit for no more than 50 percent of the purchase price. The investor must fund the remaining 50 percent with their own capital, known as the initial margin requirement.
To illustrate: if an investor wishes to purchase $10,000 worth of a marginable security under Regulation T, the investor must deposit at least $5,000 of their own funds. The broker may lend the remaining $5,000. This leverage mechanism allows investors to control a larger position than their cash alone would permit, amplifying both potential gains and potential losses.
Regulation T applies at the time of purchase — it governs the initial margin that must be deposited. It is distinct from maintenance margin requirements, which are governed by FINRA Rule 4210 and individual broker policies. Maintenance margin (typically 25 percent of the current market value of the position, though brokers frequently set higher house requirements) must be maintained on an ongoing basis. If the account value falls below the maintenance threshold, the broker issues a margin call requiring additional funds.
Not all securities are marginable under Regulation T. Newly issued securities, many lower-priced stocks, OTC penny stocks, and securities in their first 30 days of trading are often excluded from margin eligibility. Options have separate margin treatment under Regulation T, as do short sales.
Investors should understand that Regulation T is a minimum federal standard. Broker-dealers are free — and commonly do — impose stricter initial margin requirements (known as house requirements) on certain securities or customer account types. During periods of elevated market volatility, brokers may increase margin requirements with minimal notice, potentially forcing position reductions at unfavorable prices.