3.7.  Margin Accounts

Investors are allowed to purchase securities on margin if they open a margin account. Buying securities on margin means to purchase them with credit. The investor pays for part of the price of the security and the broker-dealer lends the investor funds for the rest. The loans must be secured by the customer with money or securities and placed in a margin account held by the lender.

The Securities Exchange Act of 1934 gave the Federal Reserve Board the power to regulate margin requirements. In Regulation T, the Fed lays out a set of initial margin requirements and describes how a margin account is to be maintained. For