Regulation T, also known as Reg T, is a regulation implemented by the Federal Reserve Board that sets out the rules for the extension of credit by brokers and dealers to customers who are purchasing securities on margin. Margin refers to the practice of borrowing money from a broker in order to buy securities, with the securities serving as collateral for the loan.Reg T sets out the minimum amount of equity that a customer must maintain in their margin account, known as the "maintenance margin requirement." It also specifies the minimum amount of equity that a broker or dealer must maintain in their own accounts, known as the "house maintenance requirement."For example, let's say that a customer wants to buy $10,000 worth of stock on margin, and their broker requires a 50% margin requirement. This means that the customer must have at least $5,000 in their margin account in order to make the purchase. If the value of the stock subsequently decreases and the equity in the customer's account falls below the maintenance margin requirement, the broker may issue a margin call, requiring the customer to either deposit additional funds into their account or sell some of the securities in order to meet the required margin level.
