Every account has to answer three questions before its first trade: when the customer must pay, whose name the account carries and who may give orders. Get one of these wrong and the firm extends credit it shouldn't, or the money goes to the wrong heir.
In a cash account, the customer pays the full purchase price and borrows nothing. Section 7 of the Securities Exchange Act of 1934 directs the Federal Reserve Board to prevent the excessive use of credit to buy or carry securities. Regulation T (Reg T) is the Federal Reserve Board's rule on credit that broker-dealers extend, and it sets the payment deadline in cash accounts. Reg T's payment period is the standard settlement cycle plus two business days.
So the trade settles on T+1, but the customer may pay as late as T+3 unless your firm demands money sooner. If payment is not made within the payment period, the firm must promptly cancel or liquidate the trade. The firm may disregard an unpaid amount of $1,000 or less.
Common mistakes
- Treating T+1 as the cash-account deadline. Settlement is T+1, but Reg T payment is due by T+3.
- Using a flat 30% for every short stock. For 1,000 shares short at $4, the requirement is the greater of $2,500 ($2.50 × 1,000) or $4,000 (100%). That makes it $4,000.
- Demanding $2,000 on a small purchase. A $1,500 margin purchase needs only $1,500, because the FINRA minimum never exceeds cost.
Bottom line
- The Reg T payment period is the T+1 settlement cycle plus two business days, so cash buyers pay by T+3; freeriding triggers a 90-day freeze.
- Reg T initial margin is 50% (150% on a short sale); FINRA Rule 4210 requires $2,000 minimum equity (never more than cost) and 25% maintenance on long positions.
- Short maintenance is the greater of $5.00 a share or 30% at $5 and up; below $5, it is the greater of $2.50 a share or 100%.
- Rule 4210 intraday margin replaced the pattern day trader rules and the $25,000 minimum on June 4, 2026.
Exam shortcut
When a question gives a trade date, count one business day for settlement and three for Reg T payment. For a margin deposit, take the larger of 50% or $2,000, then cap it at the purchase cost. For a discretion question, ask whether the representative picked the asset, action or amount. If the representative chose only time or price, no paperwork is needed, but that authority expires that day.
The full lesson (about 4,085 words, 27 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C15
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