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Difficulty: EasyMargin Accounts and Borrowing Requirements

Match each security type or classification on the left with its corresponding margin eligibility rule under Federal Reserve and FINRA regulations on the right.

  • Standard exchange-listed common stockSubject to Federal Reserve Regulation T requiring a standard initial margin deposit of 50% of the purchase price.
  • Open-end mutual fund sharesCannot be purchased on margin, but may be pledged as collateral in a margin account after being held for 30 days.
  • Non-marginable OTC equity securitiesMust be fully paid for with a 100% cash deposit and have zero loan value in a margin account.
  • U.S. Treasury obligationsExempt from Regulation T margin requirements, but subject to minimum SRO maintenance margin rules.

Answer

Standard exchange-listed common stock matches with requiring a 50% Regulation T initial deposit. Open-end mutual fund shares match with being non-marginable initially but collateralizable after 30 days. Non-marginable OTC equity securities match with requiring 100% cash payment. U.S. Treasury obligations match with being exempt from Regulation T but subject to SRO maintenance rules.
Under Regulation T and FINRA rules: standard exchange-listed stocks require a 50% initial Regulation T deposit; open-end mutual funds cannot be bought on margin but become collateralizable after 30 days; non-marginable OTC equities require 100% cash payment; and U.S. Treasuries are exempt from Regulation T but subject to SRO maintenance margin rules.

Step-by-Step Solution

1
Identify the margin requirement for standard exchange-listed equity securities.
Exchange-listed equities are marginable and governed by Regulation T, requiring a 50% initial margin deposit.
Federal Reserve Board Regulation T governs credit extended by broker-dealers for purchasing marginable equity securities.
2
Determine the margin and collateral rule for open-end mutual fund shares.
Mutual funds are continuous new issues and cannot be purchased on margin, but gain loan value as collateral after 30 days.
SEC rules prohibit buying new issues on margin, but permit them to serve as collateral once held for 30 days.
3
Identify the borrowing status of non-marginable OTC equities.
They cannot be financed with margin loans and require a 100% cash payment.
High volatility and low liquidity make certain low-priced OTC securities ineligible for margin collateral.
4
Identify the regulatory exemption status for U.S. Treasury obligations.
Treasuries are exempt from Regulation T but fall under specific SRO maintenance margin requirements.
U.S. government obligations are classified as exempt securities under federal margin regulations.

Key Concept

Margin Eligibility and Borrowing Rules for Securities
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Topics

Margin Accounts and Borrowing Requirements