Regulation T is the Federal Reserve rule that caps how much a broker can lend you to buy securities and sets the deadlines for paying for your trades. It requires you to put up at least 50% of the purchase price in your own funds when buying stock on margin, and it gives you a short, fixed window to pay for any securities purchase, whether in a margin or cash account. The rule is codified at 12 CFR Part 220 under authority granted by the Securities Exchange Act of 1934.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
In plain terms, Reg T does two things. It limits leverage at the moment of purchase, and it forces trades to be paid for on a defined timeline. Every broker-dealer that extends credit for securities purchases is bound by it, including members of national securities exchanges.
The 50% Initial Margin Requirement
When you buy stock on margin, Regulation T requires at least 50% of the purchase price to come from your own funds. Your broker can lend you the other 50%.2eCFR. 12 CFR 220.12 – Supplement: Margin Requirements To buy $20,000 of stock, you need at least $10,000 in cash or eligible equity already in the account.
That 50% number has held steady for decades, though the Federal Reserve has the legal authority to change it. It applies specifically to “margin equity securities,” which covers most exchange-listed stocks.
If your account falls short of the 50% requirement on a new purchase, your broker issues a margin call, sometimes referred to as a Reg T call. You have one payment period, currently three business days after the trade date, to deposit additional cash or securities to cover the shortfall.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) Miss the call and the broker will liquidate positions to bring the account back into compliance. Most firms act quickly; automated systems flag these accounts for immediate action.
Reg T governs only the moment of purchase. Once you own the stock, ongoing equity requirements are set by FINRA Rule 4210 and by individual brokerage “house” rules, which frequently sit above the FINRA floor.3FINRA. Margin Regulation
Payment Deadlines in Cash Accounts
Cash accounts don’t involve borrowing, but Regulation T still applies. The rule sets a strict timeline for paying for what you buy.
The standard settlement cycle for most securities is T+1, one business day after the trade date. That shortened from T+2 on May 28, 2024, when the SEC’s amended Rule 15c6-1(a) took effect.4U.S. Securities and Exchange Commission. SEC Chair Gensler Statement on Upcoming Implementation of T+1 Settlement Cycle Regulation T defines the payment period as the settlement cycle plus two additional business days, which works out to three business days after the trade date.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
Buy stock on Monday, and settlement happens Tuesday. Reg T gives you until Thursday to get full payment into the account. Miss that deadline and the broker generally must cancel or liquidate the unpaid portion of the trade.5eCFR. 12 CFR 220.8 – Cash Account
Free Riding and the 90-Day Freeze
The most serious cash account violation under Regulation T is free riding. It happens when you buy a security, sell it before paying for it, and then use the sale proceeds to cover the original purchase. You’ve traded with the broker’s money without permission.6U.S. Securities and Exchange Commission. Freeriding
The penalty is fixed: the broker must freeze the account for 90 days. During the freeze you can still buy securities, but you need settled cash in the account before placing any order.6U.S. Securities and Exchange Commission. Freeriding The 90-day clock starts from the date of the sale that triggered the violation. Canceling the trade doesn’t help. Under 12 CFR 220.8, a cancellation counts as a sale for purposes of triggering the freeze.5eCFR. 12 CFR 220.8 – Cash Account
One narrow escape exists. If full payment clears before the settlement date and you don’t withdraw the sale proceeds before that payment clears, the freeze doesn’t apply.5eCFR. 12 CFR 220.8 – Cash Account
A related issue is the good faith violation, which occurs when you sell a security before the funds you used to buy it have settled, even if you aren’t using the sale proceeds to cover that same purchase. Brokerages track these and may impose trading restrictions after repeated offenses. Enough of them can lead to the same 90-day restriction as free riding.
Which Securities Reg T Covers
Not every security can be bought on margin, and Regulation T draws the lines that determine how much cash you need before you can trade.
Margin-eligible securities generally include stocks listed on national securities exchanges and certain over-the-counter stocks meeting Federal Reserve criteria. These are the securities where the 50% initial margin requirement applies.2eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
Exempted securities, including U.S. Treasury bonds, government agency securities, and municipal bonds, operate under different rules. Regulation T doesn’t impose a specific percentage on these. Your broker sets the margin requirement in good faith, which typically means much lower deposits than the 50% required for stocks.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
Non-margin securities require 100% cash payment. This category includes initial public offerings, most penny stocks, and other securities the broker determines are too volatile or illiquid for margin lending.7FINRA.org. FINRA Rule 4210 – Margin Requirements Mutual funds have a quirk of their own: newly purchased fund shares generally must be held for at least 30 days before they can serve as collateral for a margin loan.
Short Sales Under Regulation T
Regulation T also sets the margin requirement for short sales. When you sell short, you must have at least 150% of the security’s current market value in your margin account.2eCFR. 12 CFR 220.12 – Supplement: Margin Requirements That breaks down to the full 100% market value of the borrowed shares plus an additional 50% margin deposit.
After the sale, FINRA maintenance requirements take over. For stocks priced at $5 or above, the ongoing requirement is the greater of $5 per share or 30% of market value.7FINRA.org. FINRA Rule 4210 – Margin Requirements Because a short seller’s losses grow as the stock price rises, these requirements can generate margin calls quickly during sharp upward moves.
What Reg T Does Not Cover
Two common margin rules often get lumped in with Reg T but come from FINRA, not the Federal Reserve.
The first is maintenance margin, the equity you must keep in the account after a purchase. FINRA Rule 4210 sets that at 25% of the current market value of long stock positions, and individual firms often require 30% or 40% on volatile stocks.7FINRA.org. FINRA Rule 4210 – Margin Requirements A maintenance margin call is a FINRA and house-rule issue, not a Reg T call.
The second is the pattern day trader designation. If you execute four or more day trades within five business days in a margin account, FINRA classifies you as a pattern day trader and requires at least $25,000 in equity in the account at all times.8FINRA.org. Day Trading That $25,000 floor is a FINRA rule, not Regulation T. FINRA filed a proposed rule change in late 2025 that would replace the current pattern day trading framework with new intraday margin standards; as of early 2026, that proposal is still pending SEC review.9Federal Register. Self-Regulatory Organizations – FINRA – Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 4210
Understanding the split matters when your broker cites a rule. The 50% initial deposit and the payment deadline are Regulation T. The 25% ongoing floor, house requirements above it, and the day-trading minimum are FINRA.