Minimum $1.. Where did that bullshit come from?… Give me a link.. I want proof…
Not everything is just provide a “link”, one must know what they are looking for to properly search for the answer. The minimum of $1 for meeting the SBP for example is NOT based on a policy established by the DTCC. The DTCC does not get to set its own policies without complying with written laws
First let us establish what the DTCC is and is not, it is easy to get the “nots” out of the way. The DTCC is not a regulatory Agency, it is not an SRO and it is not a Government agency. However the DTCC is a private corporation, it is a member of the Federal Reserve System and a registered clearing agency with the SEC. So therefore it doesn’t get to write it’s own rules and policies regarding how it operates, the rules must comply with both the Federal Reserve Board and the SEC.
All “borrow and loan” programs are governed by the Federal Reserve Board, this is all spelled out in the CFR (Code of Federal Regulations). Because the DTCC is not a Broker Dealer and is in fact like a bank it falls under Reg U. “Credit by Banks and Persons other than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock”. Such Hypothecated loans fall under Regulation U, which determines the requirements to extend such loans, more specifically loans to Broker Dealers, are under CFR 221.5 this includes such marginable stock.
The Federal Reserve Board used to publish a list of such marginable securities in a list up until 1998. The Federal Reserve Board decided at that time to place the obligation of marginable securities based upon the minimum exchange listing requirements of the NASDAQ. The minimum price is $1…. That is where the whole $1 minimum requirement comes from, the NASDAQ minimum bid price listing requirement:
Now that is the minimum margin price established by law, however as we all know most brokers do not extend margin for any security that is less than $3-$4. Why? Because they have established their own risk policies, they can lower their risk but they cannot increase their risk beyond Federal Laws.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.