Quick Answer
Not every marginable security uses the standard 50% Reg T rate. Exempt securities (Treasuries, agencies, municipals) and non-equity nonexempt securities (straight corporate bonds) use good-faith margin instead. Treasury margin rises with maturity; corporate bond maintenance depends on credit quality; and mutual funds are not marginable for their first 30 days.
Now that you understand which securities are eligible for margin, let's look at how margin requirements differ by product type. Not all marginable securities follow the standard 50% Regulation T (Reg T) rule.
Exempt Securities (Government and Municipal Bonds)
- Exempt securities (U.S. Treasuries, agency securities, municipal bonds) are not subject to Regulation T's 50% initial margin requirement
- Initial margin on exempt securities is instead set by the broker-dealer in good faith (typically much lower than 50%), reflecting the high credit quality and liquidity of government-backed securities
- Maintenance margin on exempt securities is a separate, fixed FINRA schedule, not a good-faith figure. For Treasuries and highly rated foreign sovereign debt, it varies by time to maturity; longer maturities carry more interest rate risk and therefore a higher maintenance requirement:
| Remaining Maturity | FINRA Maintenance Requirement |
|---|---|
| Less than 1 year | 1% |
| 1 year to less than 3 years | 2% |
| 3 years to less than 5 years | 3% |
| 5 years to less than 10 years | 4% |
| 10 years to less than 20 years | 5% |
| 20 years or more | 6% |
- Municipal bonds and other exempt securities not covered by the Treasury schedule above have a flat 7% of current market value FINRA maintenance requirement
- Why maturity matters: Longer-maturity bonds have greater duration (price sensitivity to interest rate changes), so the maintenance schedule requires more margin to protect against adverse price moves
Exam Tip: Gotchas
- Exempt securities still require margin; it is just much lower than 50%. Good-faith margin is not zero margin. The broker-dealer sets the initial requirement based on the security's risk profile.
- Don't confuse the good-faith initial margin with the fixed FINRA maintenance schedule. The 1%-6% by-maturity table and the flat 7% municipal figure are maintenance requirements set by FINRA, not the broker-dealer's good-faith initial margin.
- Longer-maturity Treasuries require more maintenance margin than shorter-maturity ones because of greater price sensitivity to interest rate changes. Learn the exact maturity brackets (1% under 1 year, up to 6% at 20+ years); the exam tests the precise cutoffs, not just the trend.
Corporate Bonds
Corporate bonds are nonexempt (Regulation T governs them), but they are also non-equity securities, and that is what sets the rate. Reg T's 50% requirement applies only to margin equity securities.
- Initial margin (Reg T): a straight (non-convertible) corporate bond is a non-equity security, so its initial margin is set by the broker-dealer in good faith, or a higher percentage if the applicable regulatory authority sets one (whichever is greater), not 50%
- Maintenance margin (FINRA): the greater of 20% of market value or 7% of face (principal) value. For investment-grade corporate bonds, maintenance is 10% of market value
- Convertible corporate bonds are the exception: because they convert into stock, they are treated as margin equity securities and carry the standard 50% Reg T initial margin
Exam Tip: Gotchas
- "Nonexempt" does not mean "50%." Nonexempt only means Reg T governs the security; the 50% rate is reserved for equity securities. A straight corporate bond is nonexempt AND non-equity, so its initial margin is good faith and its FINRA maintenance is 20% of market value or 7% of face (10% if investment grade).
- Convertible bonds flip to 50%. A convertible corporate bond is a margin equity security (it converts into stock), so it takes the standard 50% Reg T initial margin. Watch for the convertible-versus-straight distinction.
Mutual Funds
- Mutual fund shares must be fully paid at purchase; they cannot be financed with margin loan value because they are not marginable for the first 30 days
- After 30 days, most mutual fund shares may be used as margin collateral subject to normal Reg T requirements (50%); money market fund shares and exempted-securities money market fund shares are an exception and use good-faith margin, like other exempt and non-equity securities
Exam Tip: Gotchas
- "Exempt" and "non-marginable" are different concepts. Government bonds are exempt from Reg T's 50% requirement (they use good-faith margin, which is lower). Mutual funds under 30 days, and a new issue distributed by a selling-group member for its first 30 days, are non-marginable entirely (cannot be purchased on margin at all).
What Should You Check on Exam Day?
- Match the product to its rate: equity securities and convertible bonds = 50% Reg T; exempt securities and straight corporate bonds = good faith
- Recall the exact Treasury maturity brackets, not just "longer maturity, higher margin"
- Straight corporate bond maintenance is the greater of 20% of market value or 7% of face (10% of market value if investment grade)
- Municipal bond maintenance is a flat 7% of current market value