SIE Ready✨ The big ideas of the SIE · Lesson 4 of 8 · 60 sec
Reg T: Half Down
Want $20,000 of stock in a margin account? The Federal Reserve says you bring the first $10,000.
💡 Key idea
Reg T initial margin is 50% of the purchase; FINRA maintenance for long stock is at least 25% of market value.
🧠 Why it matters
Regulation T, set by the Federal Reserve Board, limits how much credit a broker-dealer can extend to buy securities. For most marginable stock the initial requirement is 50% of the purchase price: the customer deposits half and the firm lends the rest, holding the securities as collateral (hypothecation). FINRA Rule 4210 adds a $2,000 minimum equity to open the position and a maintenance level of 25% of market value for long stock. Fall below maintenance and the firm issues a margin call.
📈 In the real world
Rosa buys $30,000 of stock on margin. Reg T: she deposits $15,000 and borrows $15,000 (her debit balance). If the stock falls to $20,000, her equity is $5,000, which is exactly 25%. Any further drop brings a maintenance call.
📌 Takeaways
- Reg T is set by the Federal Reserve: 50% initial margin for stock
- FINRA 4210: $2,000 minimum equity and 25% maintenance on long stock
- Equity = market value − debit balance
📖 Terms in this lesson
REG T = HALF DOWN: Regulation T: the customer puts half down (50%) on a margin stock purchase and the firm lends the rest.
✅ Test yourself
A customer buys $16,000 of marginable stock in a new margin account. What is the Reg T deposit?
- $16,000
- $4,000
- $8,000
- $2,000
Answer: C · $8,000
Reg T requires 50% of the purchase price: half of $16,000 is $8,000. $4,000 is the 25% maintenance level, $2,000 is FINRA's minimum equity, and $16,000 would be a cash purchase.
Which body sets the initial margin requirement under Regulation T?
- The SEC
- FINRA
- The Federal Reserve Board
- The Treasury
Answer: C · The Federal Reserve Board
Regulation T is a Federal Reserve Board regulation. The SEC oversees the markets and FINRA sets maintenance rules in Rule 4210, but neither sets Reg T; the Treasury is not involved.
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