Product-Specific Margin Requirements
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).