What Securities Are Marginable vs. Non-Marginable?

The difference between marginable and non-marginable securities comes down to whether your broker will accept the investment as collateral for a margin loan. Under the Federal Reserve’s Regulation T, marginable securities include stocks listed on a national exchange, most bonds, shares of registered mutual funds and unit investment trusts, qualifying over-the-counter stocks on the Federal Reserve’s list, approved foreign stocks, and convertible debt.¹ Non-marginable securities — penny stocks, most unlisted OTC issues, restricted shares from private placements, and freshly issued IPOs during their restriction period — either cannot be pledged at all or must be fully funded with cash. Federal rules set the floor; your brokerage firm is free to be stricter, and often is.

What Qualifies as Marginable

Regulation T defines a “margin security” as any security in one of these categories: stocks registered on a national securities exchange, stocks listed on Nasdaq, non-equity securities such as bonds, shares of registered open-end investment companies and unit investment trusts, foreign stocks on the Federal Reserve’s approved list, and convertible debt securities.¹ If a security fits one of those buckets, federal rules permit a broker to lend against it.

Exchange-Listed Stocks

Stocks on the New York Stock Exchange and Nasdaq are the cleanest case. Listing means the company meets ongoing financial reporting, minimum share price, and liquidity standards, and any stock registered or with unlisted trading privileges on a national exchange qualifies as a margin security.² Marginable status depends on continued compliance. If a listed company falls below its exchange’s minimum price or reporting requirements and faces delisting, brokers typically strip the shares of their marginable status right away, and you may have to add cash or close the position to cover the lost collateral value.

Treasuries, Corporate Bonds, and Municipal Bonds

U.S. Treasury bills, notes, and bonds are “exempted securities” under Section 3(a)(12) of the Securities Exchange Act of 1934 because they are direct obligations of the federal government.³ Brokers generally allow substantially more borrowing against Treasuries than against stocks; the exact amount is set by each firm in good faith rather than by a fixed federal percentage.⁴

Corporate bonds qualify because Regulation T sweeps in all non-equity securities.¹ How useful they are as collateral depends on your broker’s view of credit quality and liquidity. Investment-grade bonds typically receive more favorable collateral value than high-yield issues, and some firms refuse to lend against bonds below a certain rating. Non-convertible corporate debt gets more predictable treatment than convertible bonds, which sit between debt and equity.

Municipal bonds are also exempted securities under the 1934 Act. Their collateral value depends on the credit of the issuing government and the bond type. General obligation bonds, backed by the full taxing power of the issuer, are usually accepted more readily than revenue bonds tied to a single project’s income.

ETFs and Mutual Funds

Exchange-traded funds trade on national exchanges throughout the day and follow the same margin rules as individual stocks. A listed ETF holding liquid assets becomes marginable as soon as the purchase settles.

Open-end mutual fund and unit investment trust shares are also margin securities under Regulation T.¹ Because mutual funds are bought from the fund company and priced only once per day at net asset value, most brokerage firms impose a holding period, commonly 30 days, before accepting the shares as collateral. Mutual funds cannot be liquidated as quickly as exchange-traded securities during a margin call. After the firm’s holding period, the shares support borrowing like any other margin security.

OTC Stocks on the Federal Reserve List

Some over-the-counter stocks are marginable even without an exchange listing, but only if they appear on the Federal Reserve’s list. To qualify under 12 CFR 220.11, an OTC stock must meet these tests:

At least four dealers actively make a market and submit bona fide bids and offers through an automated quotation system.
The average bid price is at least $5 per share.
The stock has traded publicly for at least six months.
The issuer has at least $4 million in capital, surplus, and undivided profits, and at least 400,000 shares outstanding excluding insider holdings.
There are at least 1,200 non-insider holders of record, or average daily volume of at least 500 shares.
The issuer is registered under the Securities Exchange Act or otherwise required to file reports with the SEC.

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OTC stocks that fail these tests, including most Bulletin Board and Pink Sheet issues, are not marginable. Without the transparency and liquidity of an exchange listing or Fed-list inclusion, brokers cannot reliably liquidate the positions in a margin call.

Foreign Stocks on the Fed’s Approved List

Foreign stocks are marginable if they appear on the Federal Reserve’s separate list of foreign margin securities. These must have a “ready market” as determined by the SEC, and once listed, they face the same 50 percent initial margin requirement as domestic exchange-listed stocks.⁶ A foreign security not on the list cannot serve as margin collateral at a U.S. broker-dealer.

What Doesn’t Qualify

Penny Stocks

The SEC defines penny stocks as equity securities priced below $5 per share that are not listed on a national exchange.⁷ Exchange-listed stocks are not classified as penny stocks even if their price temporarily dips below $5.⁸ Even so, when a listed stock falls under $5, many firms impose 100 percent margin requirements on it, which removes any borrowing power. FINRA requires non-margin-eligible equity securities held long to carry a maintenance margin of 100 percent of market value, meaning you must fully fund the position with your own cash.⁹

IPOs and New Issues

Initial public offerings face restrictions on margin credit during their early trading days. Federal and self-regulatory rules limit leverage on newly issued securities to prevent credit-fueled price inflation in the immediate aftermarket. The specific holding period a broker imposes before treating IPO shares as marginable varies by firm.

Restricted and Unregistered Securities

Shares acquired through private placements or other unregistered offerings cannot serve as margin collateral. The resale restrictions on these shares make them impossible to liquidate quickly, which is the opposite of what a lender needs from collateral.²

Products With Their Own Margin Rules

Leveraged and Inverse ETFs

Leveraged and inverse ETFs are marginable, but they carry much higher requirements than standard ETFs. FINRA scales maintenance margin by the ETF’s leverage factor. The standard long maintenance minimum is 25 percent of market value, but for a 2x leveraged ETF it doubles to 50 percent, and for a 3x leveraged ETF it triples to 75 percent.¹⁰ A short position in a 3x leveraged ETF requires 90 percent maintenance margin. Many firms set house requirements above these minimums, and some refuse to extend margin credit on the most volatile leveraged and inverse ETFs entirely.

Money Market Mutual Funds

Money market mutual funds get special treatment under Regulation T. They are listed separately from other margin equity securities in the margin supplement and are not subject to the standard 50 percent initial requirement.¹¹ Funds that invest at least 95 percent of their assets in exempted securities, known as “exempted securities mutual funds,” receive treatment similar to the government debt they hold.

How Much You Can Borrow

The initial margin requirement is the minimum percentage of the purchase price you must put up with your own money. For margin equity securities, that requirement is 50 percent of the current market value.¹¹ For non-equity securities like bonds and for exempted securities like Treasuries, Regulation T does not set a fixed percentage; it requires whatever margin the broker determines “in good faith,” giving firms discretion based on the specific instrument’s risk profile.⁴

Federal rules are the floor. Firms routinely impose “house requirements” that exceed the federal minimums. A firm might require a 70 percent initial deposit on a volatile stock instead of 50 percent. FINRA explicitly authorizes member firms to set higher margin requirements for individual securities or accounts whenever the firm believes the risk warrants it.⁹

Maintenance Margin and Concentrated Positions

Qualifying for margin at purchase is only the first step. You must keep a minimum level of equity in your account for as long as you hold the position. FINRA Rule 4210 sets the maintenance floor at 25 percent of current market value for long positions in margin securities.⁹ Most firms set house maintenance requirements higher, with 30 to 40 percent common for standard equities and more for volatile securities.

FINRA requires firms to demand extra margin when a single security or small group of securities makes up a disproportionate share of an account’s collateral, which regulators call “undue concentration of risk.”⁹ If one stock dominates your margin account, expect a higher requirement on that position even if the stock is otherwise fully marginable.

When account equity drops below the maintenance requirement, the broker issues a margin call for additional cash or securities. Brokers are not required to give advance notice before selling holdings to cover a deficiency. FINRA’s margin disclosure statement makes this explicit: a firm can sell securities in your account without contacting you first, and even after providing a deadline, it can still liquidate immediately if it believes its financial interests are at risk. You also have no right to choose which securities the broker sells, because the securities serve as collateral for the loan.¹²

1
eCFR. 12 CFR 220.2 – Definitions
2
eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
3
NYSE. Securities Exchange Act of 1934
4
eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
5
eCFR. 12 CFR 220.11 – Requirements for the List of Marginable OTC Stocks and the List of Foreign Margin Stocks
6
Board of Governors of the Federal Reserve System. Revised List of OTC Stocks Subject to Margin Regulations and Foreign Equity Securities Meeting the Margin Criteria in Regulation T
7
FINRA. Notice to Members 92-38
8
U.S. Securities and Exchange Commission. Petition for Rulemaking on Exchange Listings of Penny Stocks
9
FINRA. Rule 4210 – Margin Requirements
10
FINRA. Regulatory Notice 09-53 – Increased Margin Requirements for Leveraged Exchange-Traded Funds and Associated Uncovered Options
11
eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
12
FINRA. Rule 2264 – Margin Disclosure Statement