Margin for Non-Broker-Dealers, U.S. Borrowers and Foreign Lenders (Regulation U and Regulation X)

Overview

The Federal Reserve Board’s Regulation U (“Credit by Banks and Persons other than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock”) establishes the Federal Reserve’s regulatory framework governing extensions of credit by banks and financial institutions other than broker-dealers (e.g., commercial banks, savings and loan associations, federal savings banks, credit unions, insurance companies, etc.) to finance margin stock transactions. Margin stock includes equities registered on national securities exchanges, any OTC security, most mutual funds, and debt securities convertible into margin stock. Regulation U, among other things, generally prohibits extensions of credit by banks and other lenders, other than broker-dealers, that are collateralized directly or indirectly by margin stock and that exceed the maximum loan value of such margin stock collateral. The maximum loan value of margin stock is a stated percentage of its current market value, and has been set by the Federal Reserve at 50%.

See also the topic page on the Board's Regulation T that covers the additional requirements that apply to broker-dealers to collect margin with respect to securities under the rules of the SEC and the rules of the securities self-regulatory organizations, particularly FINRA Rule 4210. See also the separate pages that deal with (i) TBA transactions and the MSFTA Agreement, (ii) Margin for Swaps and Security-Based Swaps, and (ii) Security Futures, including margin on security futures.

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