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Difficulty: EasyFederal Reserve Board (FRB) and Margin Regulation

Match each category of securities with its correct margin eligibility status under Federal Reserve Board (FRB) Regulation T rules.

  • Exchange-listed common stocksMarginable and eligible to be purchased on credit under Regulation T
  • U.S. Treasury securitiesExempt from Regulation T margin requirements
  • Initial Public Offering (IPO) shares (first 30 days)Cannot be bought on credit, but becomes marginable collateral after 30 days
  • Unlisted OTC Pink Sheet stocksNon-marginable and ineligible for margin credit or collateral

Answer

Exchange-listed common stocks match with marginable and eligible for purchase on credit under Reg T; U.S. Treasury securities match with exempt from Reg T margin requirements; IPO shares (first 30 days) match with cannot be bought on credit, but eligible after 30 days; Unlisted OTC Pink Sheet stocks match with non-marginable and ineligible for margin credit.
The Federal Reserve Board establishes clear boundaries under Regulation T for which securities can be bought on credit, which are exempt from Reg T initial margin rules, which have seasoning periods (like IPOs), and which are completely ineligible for margin credit (like unlisted OTC Pink Sheet stocks).

Step-by-Step Solution

1
Determine the margin status of exchange-listed equities.
Exchange-listed stocks are marginable under Regulation T.
The Federal Reserve Board explicitly allows margin credit extended on national exchange-traded and Nasdaq equities.
2
Determine the margin status of government debt securities.
U.S. Treasuries are exempt from Regulation T.
Exempt securities (Treasuries and municipal bonds) are not subject to Regulation T initial margin requirements, though brokerage firms enforce internal and SRO minimum maintenance rules.
3
Identify the 30-day rule for new issues.
IPO shares cannot be bought on margin initially, but become marginable after 30 days.
Under FRB regulations, new public offerings must be fully paid for at issuance and cannot be bought on credit until 30 days after the effective date.
4
Determine the margin status of speculative OTC unlisted equities.
Unlisted OTC Pink Sheet stocks are non-marginable.
Over-the-counter penny stocks and unlisted equities generally cannot be purchased on margin or used as collateral due to low liquidity and volatility.

Key Concept

Regulation T Marginability Rules for Securities
Estimated Time:1m 0s
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Topics

Federal Reserve Board (FRB) and Margin Regulation

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