Regulation T

Regulation T

Federal Reserve Board Regulation T (also referred to as Reg T) is 12 CFR §220 - Code of Federal Regulations, Title 12, Chapter II, Subchapter A, Part 220 (Credit by Brokers and Dealers). [http://www.federalreserve.gov/regulations/default.htm#t Federal Reserve Website] ]

Regulation T governs the extension of credit by securities brokers and dealers in the United States.Its best-known function is the control of margin requirements for stocks bought on margin. The initial margin requirement for such margin stock purchases is currently 50%, [ [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=40cc031a4a064ca8d3f500270b0d0fd7&rgn=div8&view=text&node=12:3.0.1.1.1.0.1.12&idno=12 Text of 12 CFR §220.12] ] and has been since 1974, [ [http://findarticles.com/p/articles/mi_m3937/is_2000_Sept-Oct/ai_80855422/pg_2 Fortune, Peter, "Margin Requirements, Margin Loans, and Margin Rates: Practice and Principles", "New England Economic Review", Sept-Oct. 2000] ] but Regulation T gives the Federal Reserve the authority to change that percentage. Raising the margin requirement would reduce risk in the financial system by reducing the potential leverage and total buying power of investors. Lowering the margin requirement, conversely, would allow an increase in risk by expanding the buying power and leverage available to investors. Since 1974 the Federal Reserve has not deemed it necessary to adjust the margin requirement, despite numerous financial crises.

External links

* [http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=635f26c4af3e2fe4327fd25ef4cb5638&tpl=/ecfrbrowse/Title12/12cfr220_main_02.tpl Text of Regulation T]

References


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