Regulation T

Regulation-T SEC 15c3
What is Regulation-T
Regulation T is a collection of provisions that govern
investors' cash accounts and the amount of credit that
brokerage firms and dealers may extend to customers
for the purchase of securities.
FEDERAL RESERVE
FINRA & SEC

Cash Account Margin Account
1. Customer is required to pay the 1. Broker lends the customer cash to
full amount for securities purchase stocks or other financial products.
purchased
2. Buying securities with borrowed money is
2. Buying on margin is prohibited called as ‘Buying on Margin’
3. Governed by Fed Reserve 3. Margin increases the profit & loss potential
Regulation T of trade capital
4. Gives investors 2 business days to 4. Leverage is the key for lending (1:1, 1:4,
pay for a security 2:1….)
Margin Rules
Initial Margin
According to Regulation T, the investor may borrow up to 50 percent of the purchase price of
securities that can be purchased on margin. This is known as the "initial margin."
Maintenance margin (as per NYSE and FINRA)

It is the minimum amount of equity that an investor must maintain in the margin account after
the purchase has been made. Maintenance margin is currently set at 25% of the total value of
the securities in a margin account
Key Takeaways
Margin Calls - You Can Lose Your Money Fast and With No Notice
Freeriding - A situation can arise when an investor buys and sells the same securities before
paying for them from his cash account. This is called freeriding, and it is prohibited by Reg T.
MARGIN TRADING
BUYING
POWER
Initial Margin
($ 1000/-)
20 Qty
Margin
Maintenance
Call
Margin (30%)
Maintenance
Margin
Debt Equity Debt Equity Debt Equity
Special Memorandum Account (SMA)
It is a dedicated investment account where excess margin generated from a client's margin
account is deposited, thereby increasing the buying power for the client. The SMA essentially
represents a line of credit and may also be known as a "special miscellaneous account."
SMA generally equates to the buying power balance in a margin account. Buying power, also
referred to as excess equity, is the money an investor has available to buy securities when
considering the term in a trading context.
Stock No of shares Price ($) Value (LMV) Margin (50%) (DR) Equity
DUD Corp 1000 50 $50,000 $25,000 $25,000
DUD Corp 1000 70 $70,000 $25,000 $45,000
LMV-DR = EQ Margin Requirement = Reg T * LMV SMA = EQ - Margin Requirement

70000 - 25000 = EQ = 50% * 70000 = 45000-35000
EQ = 45000 = 35000 = 10000
Regulation-T, SEC Rule 15c3-3
1. It provides the possibility of extensions of credit by broker-dealers to investors when they
have not promptly paid for a securities transaction.
2. Liquidate the positions or apply for and receive an extension from FINRA
3. Regulation T gives an investor a maximum of 4 business days to pay for securities
purchased in a cash or margin account. If payment due exceeds $1,000 and is not received
by the end of this time period, the broker-dealer either liquidate the position or apply for and
receive an extension from its designated examining authority, such as FINRA.
4. SEC Rule 15c3-3 pertains to a customer's obligations when securities are sold, other than
short sales. The rule requires that if a security sold long has not been delivered within 10
business days after the settlement date, the broker-dealer must either buy the customer in,
or apply for and receive an extension from its designated examining authority.
Firms must file Regulation T and SEC Rule 15c3-3 extension of time requests via FINRA's Regulatory
Extension (REX) system (formerly known as the Reg T application).
Regulatory Extension (REX)
This is an application used to compose and submit to FINRA requests for:
1. Extension of time for payment of monies for the purchase of securities (Reg-T)
2. Extension of time for the delivery of securities (SEC Rule 15c3-3) that were sold
REX system offers enhanced functionality that will:

• Give firms the ability to amend or update submitted extension requests;
• Offer firms a wider variety of search fields for reviewing their submitted extension
requests;
• Introduce text fields that firms can use to input their own, internal identifiers for each
extension request; and
• Daily report of submissions.
SEC Rule 15C3-3 Recent Amendments
1. On January 8, 2020, the Staff of the SEC issued a “no-action” letter to the Securities
Industry and Financial Markets Association regarding the treatment of certain investment
funds under Note E(5) to SEC Rule 15c3-3.
2. This relief is industry guidance that applies to all carrying firms and is effective
immediately
3. Beneficial for registered “Investment companies” and “Unregistered “hedge” funds “
4. Prior to the issuance of the no-action letter, carrying firms may have been required to
aggregate the margin debit balances of all funds with the same or affiliated managers for
purposes of SEC Rule 15c3-3, which made it more likely that the carrying broker (prime
brokerage) would hit the debt “ceiling” in the rule and have to “cut off” or limit margin
financing across all/each of such funds
5. The letter should also be beneficial to carrying firms by providing clarification on how to
apply Note E(5) to these types of fund-customers.
Customer Reserve Formula under SEC 15C3-3
1. Carrying firms are required to do periodic computations of “credits” and “debits”

Broker-dealer may only use credit balances in the reserve formula to finance/fund
debit balances
2. Carrying firm can use customers’ free credit balances to finance customers’ debit
(margin) balances
Note E(5)
3. Limits the amount of debit balance that a broker-dealer can recognize in item 10
of the customer (and, also, the PAB3) reserve formula with respect to -
4. A single customer’s account (other than an omnibus account),
5. Guaranteed accounts
6. Accounts under “common control” and
7. Other “related accounts”
SEC rule 15c3-3 – Key points
1. SEC has provided needed clarity to the application of the Note E(5) Reduction that should
be beneficial to investment funds with common or affiliated investment managers that
trade on margin provided by their carrying firms as well as to carrying firms in achieving
compliance with their requirements under Note E(5).
2. SEC Staff will not recommend enforcement action to the Commission if a broker-dealer
does not treat the account(s) of a “Publicly-offered RIC”9 as being under common control
with the account(s) of one or more investment companies or investment funds
notwithstanding that the entities share a common investment manager or have affiliated
investment managers.
3. It does not treat the account(s) of a “Private Investment Fund”10 or a “Privately-offered
RIC”11 as being under common control with the account(s) of one or more investment
companies or investment funds notwithstanding that the entities share a common
investment manager or have affiliated investment managers if any of the following
conditions is met:
4. The aggregate amount of debit balances in the account(s) of the Private Investment Fund
or Privately-offered RIC does not exceed a “de minimis” balance (set at 2.5% of the broker-
dealer’s tentative net capital)12; or
Covered Agency Transactions
1. FINRA Extends Effective Date of Margin Requirements for Covered Agency
Transactions New Effective Date: March 25, 2020
2. The Financial Industry Regulatory Authority (FINRA) has once more filed a rule
change with the US Securities and Exchange Commission (SEC) to further delay the
effective date of certain changes to its maintenance margin rule for covered agency
transactions (e.g., to-be-announced transactions, specified pool transactions,
transactions in collateralized mortgage obligations) until March 25, 2020.
3. Final implementation of the rule’s requirements to collect margin on covered

agency transactions was scheduled for March 25, 2019, which itself was a delay
from a previous compliance date of June 25, 2018. As with the other delays, the
new postponement was filed for immediate effectiveness and FINRA, in delaying
the rule changes, said that it “is considering, in consultation with industry
participants and other regulators, potential amendments to the requirements of
[amended Rule 4210].”
Thank You

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Regulation-T SEC 15c3

FINRA & SEC

Maintenance margin (as per NYSE and FINRA)

DUD Corp 1000 50 $50,000 $25,000 $25,000

DUD Corp 1000 70 $70,000 $25,000 $45,000

LMV-DR = EQ Margin Requirement = Reg T * LMV SMA = EQ - Margin Requirement

This is an application used to compose and submit to FINRA requests for:

REX system offers enhanced functionality that will:

1. Carrying firms are required to do periodic computations of “credits” and “debits”

3. Final implementation of the rule’s requirements to collect margin on covered

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