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Regulation T: Difference between revisions
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{{a|PB|}}Federal Reserve Board’s 12 CFR §220 – Code of Federal Regulations, Title 12, Chapter II, Subchapter A, Part 220 — “[[Regulation T]]” to friends and relations — permits those [[Margin loan|buying securities on margin]] to borrow no more than 50% — or such other percentage as the Federal Reserve Board may from time to time sanction, although it not felt the need to adjust it from 50% since at least 1974 — of the purchase price. It also requires in-scope customers to open a margin account with their broker before entering any margin loan. | {{a|PB|}}Federal Reserve Board’s 12 CFR §220 – Code of Federal Regulations, Title 12, Chapter II, Subchapter A, Part 220 — “[[Regulation T]]” to friends and relations — permits those [[Margin loan|buying securities on margin]] to borrow no more than 50% — or such other percentage as the Federal Reserve Board may from time to time sanction, although it not felt the need to adjust it from 50% since at least 1974 — of the purchase price. It also requires in-scope customers to open a margin account with their broker before entering any margin loan. | ||
===Transaction recording=== | |||
Regulation T requires a prime broker to record all transactions with a customer in a “margin account” or, where permitted,<ref>Transactions in the cash account are predicated on the executing broker accepting in good faith the customer's agreement that all securities sold have already been paid for and all securities bought will be paid for before being sold</ref> a cash account. Regulation T requires an [[executing broker]] to treat the customer as its own customer and record the transaction in its cash or margin account on the premise that the executing broker is extending credit to the customer until the settlement date. However executing brokers generally settle prime brokerage transactions through the [[prime broker]]’s broker-dealer credit account (i.e., not the customer’s margin account) at the executing broker, thus treating the customer as the prime broker’s agent, and not a direct customer or debtor in its own right of the executing broker. | |||
===Free-riding=== | ===Free-riding=== | ||