Regulation T

Regulation T is the Federal Reserve Board's regulation on the extension of credit by brokers and dealers, codified at 12 CFR Part 220. Section 220.1(a) states its own authority and purpose: Regulation T "is issued by the Board of Governors of the Federal Reserve System (the Board) pursuant to the Securities Exchange Act of 1934," and "its principal purpose is to regulate extensions of credit by brokers and dealers," imposing "initial margin requirements and payment rules on certain securities transactions."

Two naming points are worth settling at the start. First, the Part's official title is "Credit by Brokers and Dealers (Regulation T)," so the letter is the Board's own designation for it rather than an industry nickname, and "Reg T" is the shortened form nearly everyone uses in practice. Second, and more consequentially, Regulation T is a Federal Reserve rule. It is commonly assumed to be an SEC rule because it governs brokerage accounts and because the SEC enforces the securities laws generally, but the Board writes it under a delegation from the Exchange Act, and the division of responsibility that follows from that is the subject of most of this page.

This page covers the regulation itself. What Regulation T means for the account most investors hold, including the payment period and the 90 day freeze, is covered on our page for the cash account; how borrowing against a brokerage account works is covered on our page for the margin account; and the demand a firm makes when equity falls short is covered on our page for the margin call.

Regulation T is a floor, not a ceiling, and section 220.1(b)(2) is where that comes from. The provision reads: "This part does not preclude any exchange, national securities association, or creditor from imposing additional requirements or taking action for its own protection." That single sentence is the legal basis for every "house requirement" an investor will actually meet, and it explains why the federal figures so often fail to describe a real account. A customer who reads that initial margin is 50 percent and finds their firm demanding 70 percent has not found an error; they have found the firm exercising a discretion the regulation expressly preserves. Section 220.12(a) builds the same idea into its own text, setting initial margin for a margin equity security at "50 percent of the current market value of the security or the percentage set by the regulatory authority where the trade occurs, whichever is greater." The trailing clause is easy to read past and is the operative half.

The regulation organizes everything into accounts, and there are five. Section 220.1(b)(1) provides "a margin account and four special purpose accounts in which to record all financial relations between a customer and a creditor," and adds that "any transaction not specifically permitted in a special purpose account shall be recorded in a margin account." The margin account is section 220.4. The four special purpose accounts are the special memorandum account (220.5), the good faith account (220.6), the broker-dealer credit account (220.7) and the cash account (220.8). A retail investor holds one of two of these, the cash account or the margin account, and the rest govern relations the customer never sees.

Who writes which number is the question a reader searching "Regulation T" usually has, and the answer is a three-way split. The Federal Reserve sets initial margin, the amount of equity required at the moment a security is bought on credit. A self-regulatory organization sets maintenance margin, the equity that must be kept in the position afterward, and since 2026 it also sets intraday standards measuring exposure during the trading day. The SEC approves those self-regulatory rules and enforces the securities laws around them. On top of all three sits the firm's own house requirement, which 220.1(b)(2) permits and which is the number actually enforced against a customer. So a single position can be measured against four different requirements written by four different bodies, and the highest one governs.

Portfolio margining is outside Regulation T altogether, which is why its numbers look nothing like these. Section 220.1(b)(3) says that the Part does not apply to, among other things, "financial relations between a customer and a creditor to the extent that they comply with a portfolio margining system under rules approved or amended by the SEC." That is a carve-out rather than an exception with adjusted percentages: an account operating under an approved portfolio margining system is not being given a discount on Reg T, it is being margined under a different system entirely. Section 220.1(b)(3) also carves out exempted borrowers, government-securities-only broker-dealers registered under section 15C, and financial relations between a foreign branch of a creditor and a foreign person involving foreign securities.

The Supplement is short, and reading it is the fastest way to see how little of a real margin account Regulation T actually fixes. Section 220.12 lists the required margin by position type in a handful of lines. A margin equity security is the 50 percent case above. An exempted security, a non-equity security, a money market mutual fund or an exempted securities mutual fund carries "the margin required by the creditor in good faith or the percentage set by the regulatory authority where the trade occurs, whichever is greater," which is to say the Board sets no number at all. A nonmargin, nonexempted equity security requires 100 percent of current market value, meaning no credit. For listed puts and calls the Supplement defers to the rules of the exchange or association authorized to trade the option, provided those rules have been approved or amended by the SEC. In other words, on the instruments a modern retail investor is most likely to hold, the Board's own Supplement points somewhere else.

Definitions in 220.2 do work far outside the Part, and two are worth knowing. "Payment period" means the number of business days in the standard securities settlement cycle plus two business days, which is how the cash-account payment deadline moves automatically when the SEC shortens settlement. "Covered option transaction" describes an options or warrant position in which the customer's risk is limited and "the amount at risk is held in the account in cash, cash equivalents, or via an escrow receipt," which is the definition that lets a covered call or a cash-secured put be written in a cash account while uncovered writing cannot be.

A broker-dealer extending credit records the transaction in one of the accounts Regulation T provides, applies the initial margin the Supplement requires or the higher figure its own regulator or house policy sets, and then applies maintenance and intraday requirements written by its self-regulatory organization for as long as the position is held. A purchase in a cash account extends no credit at all and must be paid for within the payment period.

A hypothetical illustration of the floor-not-ceiling rule, which is the single most useful thing on this page. Suppose Dinah buys $20,000 of a marginable stock on margin. Under section 220.12(a) the federal initial requirement is 50 percent of current market value, so the Regulation T figure is $10,000 of her own equity, with the remaining $10,000 borrowed.

Her firm, exercising the discretion section 220.1(b)(2) preserves, applies a house initial requirement of 70 percent on that particular stock. Her required equity is therefore $14,000 (70% of $20,000), and she may borrow only $6,000. Nothing about the federal rule has been waived or exceeded: $14,000 is greater than the $10,000 floor, which is exactly what the regulation contemplates. Had the exchange where the trade occurs set a higher percentage instead, 220.12(a)'s own "whichever is greater" clause would have produced the same result without the firm doing anything. All figures are illustrative.

What Regulation T does well

• It puts a hard federal floor under securities credit, so no broker-dealer can compete by lending more than the Board permits.
• It is short, published in full at the eCFR, and written in ordinary sentences, so an investor can read the rule that governs their account rather than a summary of it.
• Defining the payment period by reference to the settlement cycle means the cash-account deadline updated itself when settlement shortened, with no amendment needed.
• Carving portfolio margining out entirely, rather than bolting exceptions onto the Supplement, keeps a risk-based system from being read as a discount on a strategy-based one.

Where it misleads

• Its headline figures describe almost no real account, because the exchange, the self-regulatory organization and the firm may all require more.
• It sets initial margin only. The requirement that actually triggers a forced sale is maintenance margin, which the Board does not write.
• On several instrument types the Supplement sets no number at all and defers to "the creditor in good faith" or to exchange rules, so reading it does not tell you what you will be charged.
• The name invites the assumption that this is an SEC rule, which sends readers to the wrong rulebook when they try to look up a requirement.
• It governs the creditor rather than the customer, so its obligations run to the firm; an investor reading it is reading someone else's duties and inferring their own position from them.