Federal Reserve Board’s Regulation T permits those buying securities on margin to borrow no more than 50% of the purchase price. It also requires in-scope customers to open a margin account with their broker before entering any margin loan. The SEC no-action letter clarifies that where an investor is executing with one broker to give up to a prime broker, the executing broker trade doesn’t count for the purpose of Reg T, meaning as long as the customer has an account with the prime broker and is financing 50% of the purchase price with the PB, it doesn’t need to do so separately with the executing broker. Thus, the financial world can revolve.
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