Who plays a critical role in deciding initial margin eligibility?

The Federal Reserve Board plays a critical role in deciding initial margin eligibility because it establishes the regulations governing margin requirements for securities transactions. Under the authority provided by the Securities Exchange Act, the Federal Reserve sets the standards for the initial margin that must be deposited when purchasing securities on margin. This means that the Board determines the minimum percentage of the purchase price that must be paid in cash or marginable securities, influencing how much investors can borrow against the value of their securities.

While other entities like the individual brokerage firm ultimately enforce these regulations and can set stricter standards if they choose, the primary regulatory authority that decides the overarching rules for initial margin eligibility is the Federal Reserve. This central bank's decisions impact all brokerage firms and investors across the board, thereby effectively determining how much margin can be utilized in the market.