Securities Credit
The Securities Exchange Act of 1934 requires the Federal Reserve to
regulate the extension of credit used in connection with the purchase of
securities. Through its regulations, the Board establishes the minimum amount
the buyer must put up when purchasing a security. This minimum amount is known
as the margin requirement. In fulfilling its responsibility under the act, the
Federal Reserve limits the amount of credit that may be provided by securities
brokers and dealers (Regulation T) and the amount of securities credit extended
by banks and other lenders (Regulation U). These regulations generally apply to
credit financed purchases of securities traded on securities exchanges and
certain securities traded over the counter when the credit is collateralized by
such securities. In addition, Regulation X prohibits borrowers who are subject
to
In general, compliance with the Federal Reserve’s margin regulations is
enforced by several federal regulatory agencies. The federal agencies that
regulate financial institutions check for Regulation U compliance during
examinations. The Federal Reserve checks for Regulation U compliance on the part
of securities credit lenders not otherwise regulated by federal agencies.
Compliance with Regulation T is verified during examinations of broker-dealers
by the securities industry’s self-regulatory organizations under the general
oversight of the SEC.