What Is a Regulation T Extension Fee at Webull, Fidelity, and Schwab?
Regulation T, often referred to as Reg T, is a set of rules that apply to margin accounts—these are accounts where you can borrow money from a brokerage to purchase stocks. Reg T dictates that you can borrow up to 50% of the purchase price of a stock. For example, if you want to buy $6,000 worth of Exxon Mobil, you can borrow $3,000 from your broker and pay the other $3,000 with your own money.
Reg T covers both margin and some cash account activities. However, the extension fee we're discussing mainly affects margin accounts.
When you take out a loan, like the $3,000 in our example, your brokerage monitors the stock's value. If the stock's value drops significantly, it could trigger a margin call, which means the broker asks you to deposit more cash or sell some of your stock to cover the loan. If you don't meet the margin call by either adding money or selling stock, and the amount due is over $1,000, the broker must sell your shares to bring your account back into compliance.
Brokers can also request an extension from FINRA, the financial regulatory authority, to get more time to settle the payment if the delay is due to transaction issues and not your unwillingness or inability to pay. This is where the Reg T extension fee comes into play.
Brokerages may charge a fee for this extension. For instance, TD Ameritrade charges $25 for each extension. Ally Invest charges $10 plus interest until the settlement date, while E*Trade doesn't charge at all. It’s essential to check with your brokerage for their specific fees.
Remember, a Reg T extension is different from a forced margin liquidation, which might have its own fees.
Updated on 7/22/2024.
|