Regulation T governs credit extended by U.S. brokers and dealers, including initial margin, account, payment, and collateral rules for covered securities transactions.
Regulation T is the Federal Reserve regulation that governs credit extended by brokers and dealers, including initial-margin, account, payment, and collateral rules for covered securities transactions. It is codified at 12 CFR Part 220 under authority that includes the Securities Exchange Act of 1934.
Regulation T is broader than the familiar statement that an investor can borrow half the purchase price of a stock. It distinguishes margin accounts, cash accounts, special memorandum accounts, good-faith accounts, and other arrangements. Its treatment depends on the security, account, transaction, and creditor.
Regulation T applies to a “creditor,” a defined term that generally includes brokers, dealers, exchange members, and associated persons covered by the rule. Its main subjects include:
It does not mean that every security can be bought on margin. Marginability depends on the rule’s definitions, applicable self-regulatory organization rules, and the broker’s own policies.
| Requirement | When it matters | Who sets it | What it does |
|---|---|---|---|
| Regulation T initial margin | At a covered purchase or when a transaction creates or increases a deficiency | Federal Reserve | Sets the federal minimum deposit or equity framework for covered positions |
| FINRA or exchange maintenance margin | While the position remains open | Applicable self-regulatory organization | Sets an ongoing minimum equity requirement |
| Broker house margin | At entry or while the position remains open | Broker-dealer | Can be stricter than regulatory minimums and can change with risk conditions |
The Federal Reserve has established initial, not maintenance, margin under Regulation T. Calling an ongoing house or FINRA requirement “Reg T maintenance margin” obscures which rule actually caused a Margin Call.
Section 220.12 currently requires 50% of current market value for a long purchase of a margin equity security, unless a listed exception or a higher requirement set by the relevant regulatory authority applies. In a basic long-stock example, that means an investor supplies at least half the purchase value and the broker finances no more than the other half.
The 50% figure is not a universal rule for every asset. Exempted securities, nonequity securities, money market mutual funds, nonmargin equity securities, options, and short sales can receive different treatment under the supplement. A broker may also require more equity or decline to lend against a security.
Assume an investor buys $20,000 of marginable stock under a 50% initial-margin requirement:
| Source | Amount |
|---|---|
| Investor equity | $10,000 |
| Broker loan, or debit balance | $10,000 |
| Total purchase | $20,000 |
If the stock later falls to $14,000 and the debit balance remains $10,000, account equity is:
$14,000 - $10,000 = $4,000
The equity percentage is:
$4,000 / $14,000 = 28.6%
The original Regulation T initial requirement was met at purchase. Whether 28.6% triggers a later call depends on applicable maintenance and house requirements, not a second application of the 50% initial rule. Interest, fees, other positions, and broker valuation practices can change the result.
The decline from $20,000 to $14,000 is 30% for the stock, but investor equity fell from $10,000 to $4,000, or 60%, before interest and fees. That difference illustrates the leverage risk of Margin.
Regulation T also applies to cash accounts. A broker may accept a customer’s good-faith agreement to make full payment promptly and not sell the purchased security before paying for it. If required payment is not received within the applicable period, the rule can require cancellation or liquidation, subject to its terms and exceptions.
The regulation defines payment period as the number of business days in the standard U.S. securities settlement cycle plus two business days. Most U.S. broker-dealer securities transactions moved from T+2 to T+1 settlement on May 28, 2024. That did not make “Reg T” another name for T+1, nor did it eliminate the separate payment-period definition.
For a current transaction, distinguish:
Free-riding and late-payment rules can restrict a cash account even though no conventional margin loan was requested. Investors should follow the broker’s payment instructions rather than assuming that planned sale proceeds will always satisfy a purchase.
| Regulation | Primary subject | Typical covered party | Core question |
|---|---|---|---|
| Regulation T | Credit by brokers and dealers | Broker-dealer creditor and customer account | What credit and account treatment may the broker provide? |
| Regulation U | Purpose credit secured directly or indirectly by margin stock | Banks and certain lenders other than brokers or dealers | Is the lender financing the purchase or carrying of margin stock against covered collateral? |
| Regulation X | Certain borrowing subject to U.S. margin rules | Covered borrowers, including specified foreign borrowing situations | Must the borrower comply with T- or U-equivalent constraints? |
Together these regulations are an example of Selective Credit Controls. They target securities credit rather than changing the economy-wide policy rate.
Regulation T does not:
The rule limits and structures covered credit. It does not remove market, liquidity, concentration, interest-rate, or operational risk.
Before relying on a buying-power figure, verify:
Do not infer available credit from the 50% headline alone. The broker’s written margin agreement and current requirements determine what the account can actually do.
Regulation T’s initial requirement is measured when covered credit is extended. A later call usually reflects maintenance or house rules and current account equity.
A security can be subject to a 100% requirement or excluded from margin lending. Price, listing status, liquidity, concentration, and broker policy can matter.
Settlement timing comes from SEC market rules. Regulation T refers to settlement when defining its payment period, but the two frameworks answer different questions.
A 50% federal requirement does not compel a broker to lend 50%. House requirements may be higher at entry or increase while the position is open.
A broker may be able to sell positions under the margin agreement without consulting the customer. A call is not a promise that the investor will receive extra time.
This article is educational, not legal, compliance, or investment advice. Margin and payment rules can change and depend on the account, security, broker, and transaction. Review current official rules and the broker’s agreement before acting.