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
- Instead, the margin requirement is set by the broker-dealer in good faith (typically much lower than 50%)
- The lower requirement reflects the high credit quality and liquidity of government-backed securities
- Treasury margin requirements vary by time to maturity. Longer maturities carry more interest rate risk and therefore higher requirements:
| Remaining Maturity | Typical Margin Requirement |
|---|---|
| Less than 1 year | ~1-2% |
| 1-5 years | ~2-3% |
| 5-10 years | ~3-4% |
| 10-25 years | ~4-5% |
| Over 25 years | ~5-6% |
Why maturity matters: Longer-maturity bonds have greater duration (price sensitivity to interest rate changes), so firms require 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 requirement based on the security's risk profile.
- Longer-maturity Treasuries require more margin than shorter-maturity ones because of greater price sensitivity to interest rate changes.
Corporate Bonds
- Corporate bonds are nonexempt securities subject to Regulation T (Reg T)
- Initial margin: the greater of 50% of market value or $2,000
- This is the standard Reg T treatment; no special rules apply
Think of it this way: Corporate bonds are treated just like stocks for margin purposes. The same 50% Reg T initial margin applies.
Mutual Funds
- Mutual fund shares must be fully paid at purchase (not marginable for the first 30 days)
- After 30 days, mutual fund shares may be used as margin collateral subject to normal Reg T requirements (50%)
- Redemptions within 30 days while using margin may constitute a free-riding violation
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). IPOs and mutual funds under 30 days are non-marginable entirely (cannot be purchased on margin at all).