A marginable security is one your broker will let you borrow against inside a margin account, and a non-marginable security is one you have to pay for in full. The dividing line between marginable and non-marginable securities starts with the Federal Reserve’s Regulation T, which treats exchange-listed stocks, most bonds, mutual fund and ETF shares, Treasuries, and certain approved over-the-counter and foreign stocks as eligible collateral.1eCFR. 12 CFR 220.2 – Definitions Everything else — penny stocks, most pink-sheet issues, restricted shares, and freshly issued IPOs — sits on the non-marginable side. Your broker can always be stricter than the federal rule, so a security that qualifies under Regulation T can still be rejected by the firm that holds your account.
What Makes a Security Marginable
Regulation T, at 12 CFR Part 220, is the Federal Reserve rule that tells brokers and dealers what they can lend against. It defines a “margin security” by category: stocks registered on a national securities exchange, stocks listed on Nasdaq, any non-equity security such as a bond, shares of registered open-end funds and unit investment trusts, foreign stocks on the Federal Reserve’s approved list, and convertible debt.1eCFR. 12 CFR 220.2 – Definitions Fit one of those buckets and federal rules permit a broker to extend credit against the position.
For stocks, the initial margin requirement is 50 percent: you deposit half the purchase price in your own money and can borrow the other half.2eCFR. 12 CFR 220.12 – Supplement: Margin Requirements For bonds and for exempted securities like Treasuries, Regulation T sets no fixed percentage. The broker sets what it considers a good-faith requirement based on the specific instrument.3eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
Federal rules are only the floor. FINRA authorizes member firms to set higher “house” requirements on any security or account whenever the firm believes the risk warrants it.4FINRA. Rule 4210 – Margin Requirements A broker might demand 70 percent up front on a volatile stock, or refuse margin credit on it altogether. So the question “is this marginable?” has two answers — one from the Fed, one from your firm — and it’s the second that governs your account.
Securities That Qualify for Margin
Exchange-Listed Stocks
Stocks listed on the New York Stock Exchange, Nasdaq, or another national exchange are the cleanest case. Registration means the company meets ongoing reporting, minimum-price, and liquidity standards, and Regulation T treats any stock registered or granted unlisted trading privileges on a national exchange as a margin security.5eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) Lose the listing and you lose the status: if a company drops below its exchange’s requirements and faces delisting, brokers typically strip the shares of marginable status right away, which can force you to add cash or sell.
Treasuries, Munis, and Corporate Bonds
U.S. Treasury bills, notes, and bonds are “exempted securities” under Section 3(a)(12) of the Securities Exchange Act of 1934.6NYSE. Securities Exchange Act of 1934 Because the federal government backs them, brokers generally extend far more borrowing power against Treasuries than against stocks, with the specific loan value set in good faith by the firm.3eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
Municipal bonds are also exempted securities. Their collateral value at your broker will depend on the issuer’s credit and the type of bond; general obligation bonds, backed by the issuer’s taxing power, are typically accepted more readily than revenue bonds tied to a single project.
Corporate bonds are marginable too, because Regulation T sweeps in all non-equity securities.1eCFR. 12 CFR 220.2 – Definitions How much you can actually borrow against them depends on credit quality and liquidity. Investment-grade bonds get more favorable treatment than high-yield issues, and some firms decline to lend against bonds below certain ratings.
ETFs and Mutual Funds
Exchange-traded funds listed on major exchanges are marginable on the same footing as individual stocks and become available as collateral once the purchase settles.
Open-end mutual fund and unit investment trust shares are defined as margin securities under Regulation T.1eCFR. 12 CFR 220.2 – Definitions But mutual funds price only once a day at net asset value, so most brokers impose a holding period — commonly 30 days — before treating those shares as collateral. After that, they support borrowing like any other margin security.
Money market mutual funds sit in their own bucket in the Regulation T margin supplement and aren’t subject to the standard 50 percent initial requirement for equities.2eCFR. 12 CFR 220.12 – Supplement: Margin Requirements Funds that hold at least 95 percent of their assets in exempted securities are treated similarly to the government debt they hold.
Leveraged and Inverse ETFs
Leveraged and inverse ETFs are marginable, but at a stiff price. FINRA requires the maintenance margin on these products to be scaled by the leverage factor. The 25 percent baseline for a standard long position doubles to 50 percent for a 2x fund and triples to 75 percent for a 3x fund. Short positions get worse: a short in a 3x leveraged ETF requires 90 percent maintenance margin.7FINRA. Regulatory Notice 09-53 – Increased Margin Requirements for Leveraged Exchange-Traded Funds and Associated Uncovered Options Many firms set house requirements above those minimums, and some refuse margin on the most volatile leveraged products outright.
OTC and Foreign Stocks on the Fed’s Lists
Some over-the-counter stocks are marginable even though they aren’t exchange-listed. The Federal Reserve publishes a list of qualifying OTC stocks under 12 CFR 220.11, based on criteria that include a minimum $5 average bid, active market makers, a six-month trading history, minimum issuer capital and share counts, a broad shareholder base, and SEC reporting.8eCFR. 12 CFR 220.11 – Requirements for the List of Marginable OTC Stocks and the List of Foreign Margin Stocks Foreign stocks work the same way: the Fed maintains a separate list of foreign margin securities, and stocks on that list carry the same 50 percent initial requirement as domestic exchange-listed equities.9Board 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 OTC or foreign issues that don’t appear on the applicable list aren’t eligible.
Securities That Don’t Qualify for Margin
Penny Stocks
The SEC defines penny stocks as equity securities priced under $5 per share that are not listed on a national exchange.10FINRA. Notice to Members 92-38 An exchange-listed stock doesn’t become a penny stock just because its price temporarily slips below $5.11U.S. Securities and Exchange Commission. Petition for Rulemaking on Exchange Listings of Penny Stocks But when a stock trades below $5 off-exchange, brokers can’t rely on the liquidity they’d need to unwind a losing position, and FINRA requires that non-margin-eligible equity securities held long carry 100 percent maintenance margin — you fund the position entirely with your own cash.4FINRA. Rule 4210 – Margin Requirements Most stocks that trade on the OTC Bulletin Board or Pink Sheets fall on this side of the line for the same reason.
IPOs and New Issues
Newly issued shares face restrictions on margin credit during their earliest trading days to prevent credit-fueled price moves in the immediate aftermarket. The exact holding period before an IPO becomes marginable varies from broker to broker.
Restricted and Unregistered Securities
Shares from private placements and other unregistered offerings can’t serve as margin collateral. Resale restrictions mean the broker can’t liquidate them quickly, which is the opposite of what a lender needs from collateral.5eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
Why Your Broker’s List May Be Shorter Than the Fed’s
Even when a security is marginable under Regulation T, your broker can refuse to lend against it or can demand more equity than the federal minimum. FINRA Rule 4210 sets the maintenance margin floor at 25 percent of current market value for long positions in margin securities, but house requirements of 30 to 40 percent are common for standard equities, and higher for volatile or concentrated positions. FINRA also requires firms to demand additional margin when a single security or a small group makes up a disproportionate share of an account’s collateral, a condition regulators call undue concentration of risk.4FINRA. Rule 4210 – Margin Requirements If one stock dominates your account, expect a tighter requirement on that position specifically.
What “Marginable” Actually Buys You
Qualifying for margin at purchase is only the entry ticket. You have to keep enough equity in the account for as long as the position is open. If your equity falls below the maintenance requirement, your broker issues a margin call for more cash or securities.
Two features of that call surprise people. First, the broker doesn’t have to warn you before selling. FINRA’s required margin disclosure statement says plainly that a firm can sell securities in your account without contacting you first, and that even after giving a deadline, it can still liquidate positions immediately if it believes its own financial interests are at risk. Second, you don’t get to pick what gets sold. Because the securities are collateral, the firm chooses which positions to close, which can trigger tax consequences on positions with large unrealized gains.12FINRA. Rule 2264 – Margin Disclosure Statement Knowing which of your holdings are marginable is the first question; knowing that the broker controls the exit is the one right behind it.