15 U.S.C. § 78g — Margin requirements

(a) Rules and regulations for extension of credit; standard for initial extension; undermargined accounts — To stop people from using too much borrowed money to buy securities, the Federal Reserve Board must write rules limiting how much credit someone can get to buy or hold a security (except an exempted security or a security futures product). It had to write the first rules before October 1, 1934, and can update them anytime after. For the first extension of credit, the amount can't be more than the higher of: (1) 55% of the security's current market price, or (2) 100% of the lowest market price the security had over the past 36 months, but never more than 75% of the current price. The rules can also cover things like: keeping "undermargined" accounts (accounts with too little collateral) open for a limited time under set conditions; withdrawing funds or securities; adding or swapping securities; moving accounts between lenders; special margin rules for delayed deliveries, short sales, and arbitrage; and how to calculate loans, margins, and market prices. Until July 1, 1936, when figuring out the lowest price over 36 months, the Board only had to look back to July 1, 1933. (b) Lower and higher margin requirements — Despite subsection (a), the Board can set different margin rules for particular securities or transactions. It can lower the minimum margin needed to help commerce and industry, considering the country's overall credit situation. It can also raise the minimum margin to stop people from using too much credit to buy securities. (c) Unlawful credit extension to customers — (1) It is illegal for a member of a national exchange, broker, or dealer to extend or arrange credit for a customer: (A) on any security besides an exempted one, in violation of the Board's rules, unless paragraph (2) applies; or (B) without collateral, or with collateral other than securities, except under Board rules that let a firm keep a properly-started loan going for a limited time, or that let credit be extended for reasons other than buying or holding securities or getting around subparagraph (A). (2) Margin regulations for security futures products: (A) It's illegal to extend, maintain, or collect margin on any security futures product unless the activity follows rules from the Board, or — if the Board delegates this — jointly from the SEC and the Commodity Futures Trading Commission (CFTC). If the Board delegates but the SEC and CFTC don't write joint rules in a reasonable time, the Board must write the rules itself. (B) These rules must set margin levels designed to: (i) keep the markets for security futures products financially sound; (ii) prevent systemwide risk; (iii) require that margin on a security future match the margin on a comparable stock option, and never be lower than the lowest margin (not counting premium) required for a comparable option — though an exchange can still require higher margin if it wants; and (iv) make sure other margin rules (like what counts as acceptable collateral) match what the Board requires elsewhere in this subsection. (3) Exception: this subsection's rules don't apply to credit a broker or dealer extends to another broker or dealer if that other firm mostly does business with people who aren't brokers or dealers, or uses the credit to work as a market maker or underwriter — but the Board can still apply some or all of these rules if it decides that's necessary to protect the public or investors. (d) Unlawful credit extension in violation of rules and regulations; exceptions — (1) It's illegal for anyone not covered by subsection (c) to extend or arrange credit to buy or hold securities, if doing so breaks Board rules meant to stop people from working around this section's other limits. These rules can put limits on such loans similar to the limits placed on members, brokers, and dealers under subsection (c). (2) Exceptions — these rules don't apply to credit that is: (A) extended by someone not in the regular course of business; (B) secured by an exempted security; (C) given to a broker or dealer who mostly serves non-broker-dealer customers, or who uses it to work as a market maker or underwriter; (D) extended by a bank on a security that isn't an equity security; or (E) exempted by the Board through its own rules or orders, on any terms or for any period it decides, if necessary to protect the public or investors. (3) The Board can still apply some or all of these rules to credit exempted under (2)(C) if it decides that's necessary to protect the public or investors. (e) Effective date of this section and rules and regulations — This section and its rules don't apply, before July 1, 1937, to any loan made before June 6, 1934, or to keeping, renewing, or extending such a loan — except the Board can write rules to stop people from using such old loans to dodge this section, for example by withdrawing funds, swapping securities, or buying more. (f) Unlawful receipt of credit; exemptions — (1) It is illegal for a U.S. person (or a foreign person controlled by a U.S. person) to get or use a loan from any lender to buy U.S. securities, or to buy other securities within the U.S., if that loan would be illegal under this section had it been made through a lender's office inside a state. (2) Definitions for this subsection: "United States person" includes anyone organized under state law, a U.S. citizen or resident, a domestic estate, or a trust where such people hold more than 50% of the value. "United States security" means a security (besides an exempted one) issued by a company incorporated under state law or with its main office in a state. "Foreign person controlled by a United States person" includes any entity where U.S. persons hold more than 50% of the beneficial interest, or any corporation where U.S. persons own more than 50% of the voting stock or total stock value. (3) The Board can exempt any class of U.S. persons or controlled foreign persons from this subsection. (g) Effect of bona fide agreement for delayed delivery of mortgage related security — Under Board rules meant to protect investors, a member, broker, or dealer is not considered to have extended credit just because they made a genuine agreement to deliver a mortgage-related or small-business-related security later, in exchange for full payment, as long as delivery happens within 180 days of purchase (or a shorter time the Board sets by rule).