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My broker has a money market mutual fund where I can park the money when not invested, but that position does not give margin buying power for next 30 days.

Per article part shown below.

Example of Non-Marginable Securities

Charles Schwab sets its margin requirements so that certain securities are not marginable. Schwabl allows most stocks and ETFs as marginable securities, as long as the share price is $3 or higher.

As well, mutual funds are allowed if they’re owned form more than 30 days, as are investment-grade corporate, treasury, municipal, and government bonds. IPOs above a certain volatility level are not marginable; however, other than that, IPOs are marginable if they are purchased one business day after the IPO on the secondary exchange

What magic happens after 30 days that the brokerage allows the security to be marginable? What does the brokerage control for these 30 days? Why does this rule exist and how does it protect the investor, broker, or stock market as a whole?

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    Probably for the same reason they don’t let you trade some mutual funds more than once a month. I’d ask them.
    – RonJohn
    Jan 12, 2020 at 2:53
  • 1
    @ronjohn is it somehow related to wash sale?
    – Raj
    Jan 13, 2020 at 14:19
  • no, I don't think so.
    – RonJohn
    Jan 13, 2020 at 14:22

2 Answers 2

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Mutual Funds are "open-end" funds and when you buy new shares are created. For that reason is it considered a new issue and is non-marginable for 30-days.

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Per your link, brokers make some securities non-marginable to mitigate risks. These include recent IPOs, penny stocks, over-the-counter bulletin board stocks, leveraged ETFs and very volatile stocks.

Some brokers set even more restrictive requirements than the Reg T minimum because they want to dissuade trading.

For example, prior to abolishing commissions for online trades of stocks and options last week, Vanguard allowed 20 trades at a lower rate and then jacked up the commission for additional trades.

Some brokers limit the frequency of trading in their mutual funds because they want stability not volatility. They may require a minimum holding time or only allow "X" trades per year. Otherwise, there is a penalty (higher commission, trading restrictions imposed).

The limit on your money market mutual fund puzzles me. Money market funds are available at any time and I suspect that this may just be a situation where they want you to transfer the money to your brokerage account before allowing usage (and margin). The clever thing to do would be to call your broker and determine what constraints they have as well as what alternatives there are, if any.

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